Woolf was among the fortunate few who inherited money and so inherited her independence. The vast majority of women needed to earn it through sustained labor. Her elite status may explain why Woolf’s commentary missed a key factor defining the status of poor women surrounding them.

Although Woolf correctly denounced social prejudice as a barrier to women’s economic advancement, it was only when prejudice was embedded into law that women were consigned to the kitchen or unskilled labor. Whenever the law was weakened, poor women surged into rooms of their own.

Nevertheless, Woolf’s essay is honored as an early blast at patriarchy and an indictment of the unfettered marketplace. Instead of recognizing how regulation harms poor women, Woolf’s descendants have called for an ever more shackled marketplace.

What were the circumstances for English working women in 1929? A tug-of-war was occurring between the repeal of economic legislation and its imposition. The first led to greater opportunity for women; the second closed doors. Both phenomena sprang largely from the same cataclysmic event: World War I (1914-1918)

War Years

During the war years, an estimated two million women stepped out of the kitchen to fill the jobs vacated by enlisted men. Millicent Fawcett, president of the National Union of Women’s Suffrage Societies (1897-1918), declared, “The war revolutionised the industrial position of women — it found them serfs and left them free.”

After the war women’s economic status blurred, with many employers replacing women with returning men. Three factors ensured that women would remain in the workforce, however.

• Some women embraced their wider sphere and would not willingly retreat into economic shadows.
• Britain’s huge death and casualty rate in the war meant that abled bodied men were less available. Approximately 750,000 men died, with 2.5 million claiming disability.
• Many women faced a future as widows or spinsters responsible for their own sustenance.

British law reacted to women’s changing status in contradictory ways. The Sex Disqualification Removal Act of 1919 eliminated legal barriers to women in the civil service, courts and universities, thus recognizing their wider role. When this legal barrier was lifted, women surged forward. Carrie Morrison became the first female solicitor three years later. Overwhelmingly, however, the act benefited well-to-do women.

Although the civil service might have served as a stepping stone for all poor women, it became regulated at the urgent request of women themselves. Despite fewer employable men, Britain experienced the general unemployment brought by the Great Depression. Widows and spinsters wanted married women who sought the same jobs discriminated against. For example, in 1921 an estimated 102,000 female civil servants pushed forward a resolution to ban married women; it remained in force until 1946.

Over and over the preceding scenario replayed during the twentieth century. Laws were repealed and all women advanced; laws were passed and some women were set back.

Protection Equals Privilege

Even laws intended to protect women, like the civil service restriction, ended up privileging one class of women at the expense of another. This too has escaped the notice of Woolf’s descendants who have lobbied passionately for the restriction on free employment, from affirmative action to pay equity, from mandated quotas to paid maternity leave.

I’ve had reason to notice. I once needed a room of my own. And I know on a personal level how laws can harm those they intend to protect. I ran away from home at 16 years old because the streets were safer than my family. Unfortunately it was Canada in December and sleeping in a church with an open-door policy was a stop-gap measure at best. I needed a room with heat and a door that locked.

I was lucky because I was 16-years-old. Child labor laws designed to protect children from exploitation did not apply to me, and so I was able to get a minimum-wage job in a furniture store, filing years worth of boxed papers. If I had been “protected” either as a child or a female from being able to negotiate for less money than other applicants demanded, I would not have been able to to rent a room in a boardinghouse. Instead, I would have been “protected” into begging, stealing, dealing drugs, or sex work. Like most runaways, I would not have “turned myself” into the authorities known as social services.

What saved me was the ability to contract on my own terms so that I could buy a room with a lock and go on to build a life.

One other trait of the busybodies stood tall for all thoughtful folks to perceive: They were far too busy minding the business of all within their fiefdoms to mind their own business, to care for their own children, and to manage their own households.

Times are no longer simple and gentle and safe, but the busybody has not only survived but also prospered, become fruitful, and filled every crevice and cranny of the nation. Fifty years ago my father insightfully titled his speech to a San Francisco business gathering as I have this article. He observed that in the years following World War II, busybodydom had flourished like an obnoxious weed, threatening to crowd out the air and light of individual ideas and purposeful personal action, and in this manner destroy the nurture encouraged by stable and essential decisions. The past decades verified Jack Foley’s observation and warning and, unfortunately, we reside today in times dominated by throngs of busybodies.

Rules and regulations, orders and directives, all kinds and kindred of commands direct almost every avenue of our daily lives. Virtually all these directives emanate from busybodies and almost all of them are, or may be, enforced by the power of law; that is, the noncomplying person suffers a penalty, usually loss of liberty or property, occasionally the loss of his life. Our lives today are ruled by force writ large, a force that usually commands far less efficacious outcomes than would result from the free actions flowing from purposive and creative individual conduct.

When we consider legally compelled directives, we blandly think of the tripartite governmental structure of the federal government and the similar political construction of the several states, and we see in theory a legislative branch that enacts laws, an executive who administers those laws, and a judiciary that interprets rules and issues orders based on and about those laws. Myopically we do not see the whole regulatory blight that afflicts us because we overlook several obscured but essential components of law-making. Without limitation, consider the following busybody regulators.

Legislate and Delegate

First, state and federal legislators seldom enact detailed statutory law. Most often they pass broad policy statements and “delegate” detailed rule-making and enforcement powers to an administrative bureaucracy. The critical characteristic of this rule-making and law-enforcing apparatus is that it is unelected, usually unknown, and fundamentally untouchable and ungovernable. While the legislator theoretically oversees the detailed conduct of the administrator, in fact oversight is nonexistent in almost all instances. Hence the common retort to those who disagree with overwhelming and strangling legislation that “you can reject the legislators at the next election” is a sham and a chimera. Legislators come and go, normally after enhancing their own wealth remarkably, but the unelected bureaucratic rule-makers and rule-enforcers remain for a lifetime, ordinarily protected by compulsory civil service “safeguards” and most assuredly made wealthy by huge and untouchable pensions and other emoluments of the office.

Second, concentration on legislators obscures the rule-making and enforcement/enhancement of the executive. In federal terms the president often creates very real and effective restraints on individual rights and conduct by use of executive orders; to make matters worse, these orders are usually hidden from common view and secreted under some sort of “national security” or “rule of necessity” rubric. They may be printed and published but often remain cloaked in secrecy. Many governors possess and use similar powers.

Third, it is all too easy to overlook or forget the myriad municipal and quasi-municipal corporations that regulate the fiber of our lives. Busybodies abound and prosper in local improvement districts, school districts, sewer districts, government-owned and -operated utilities, park and recreation districts, and a Mongol horde of other quasigovernmental entities in addition to the more obvious and long-recognized city and county governments. Each and every one of these institutions possesses and exercises the power to enact and enforce rules that compel or constrain individual human behavior and, more odious, many of these rules are produced in the shadows and are difficult to locate until enforcement suddenly becomes an issue.

Fourth, the day of the judge as a limited dispute-decider has long passed. To a greater or lesser degree, federal, state, and local judges make regulatory law by purporting to “interpret” legislation in a manner not dissimilar to the rule-making and enforcement-enhancing activities of the administrative apparatus. Once again, many members of the judiciary serve for lengthy terms or for life and are seldom sanctioned by the voting public.

Root Causes

A search beneath the surface of this calamitous condition reveals at least two elemental causes. Reining in the busybody requires a brief analysis of each, neither of which is easily recognized nor fully appreciated.

To begin, people are inclined to be busybodies. No one should overlook or deny the infinite variety in human behavior; nonetheless permit some generalizations to illustrate my greater point. We humans tend to egotism, an ingrained belief that we can perceive a condition and prescribe a proper conclusion, and do so much more accurately and appropriately than any other person. In addition we tend to judge ourselves much less harshly than we do others, meaning we are more forgiving of our own mistakes than of the errors of our fellow man.

Busybodydom results from the conceit and concatenation of these everyday human traits. It causes perfectly ordinary—that is, flawed—persons to see what they perceive as a problem requiring a solution and to decide on the proper process by which to resolve the problem. More than that it encourages the observer to believe that his is the only suitable method and disposition, and it compels him to seek out others to join him in foreclosing any alternative process or solution by the force of law.

Rules and Orders

Second, one must appreciate the essential and elemental differences in types of legal commands, one of which encourages the current State’s incipient tendency toward busybodyness. Legal philosophers commonly divide legal commands into two categories: rules and orders. Such philosophers may disagree that rules and orders comprise the sum of human law, but these general categories illustrate the larger point of this essay.

In simple terms rules refer to statutory or regulatory enactments by legislatures and other similar governing bodies, which seek to identify a situation or condition, command by force of law an express outcome in all such and similar contexts, and prohibit and penalize any alternative individual or group action or outcome. On the other hand, orders simply refer to the legally enforceable decision by an arbiter of a dispute chosen by specified individuals or entities.

Even given the blurry line between rules and orders, appreciated only by the jurisprudential philosopher, this primary distinction illustrates one of the reasons that modern busybodies truncate human choice and inhibit productive individual action. Rule-making attempts to foresee most or all human interactions and to prescribe in advance all legally acceptable outcomes. Ordering conduct differs because it uses (or should use) the force of law only in a more limited fashion, purporting to decide a particular dispute between identified human beings or groups, and designing an outcome limited to those persons and others in direct relationship with them. The more limited the legal intrusion, the more open-textured the law. Orders tend to restrict creative human behavior less than do rules because orders arise in single instances (although English and American courts do tend to decide like cases in a similar manner under doctrines labeled by the quaint Norman-French-Latin phrases res judicata and stare decisis), where 1) discrete and specific facts can be assessed and evaluated and 2) only the individuals directly or closely affected (all of whom generally are able to participate in the proceeding) are governed and legally limited by the outcome.

Rules, to the contrary, attempt to forecast and prescribe limited permissible outcomes for all persons in all cases without the benefit of individual factual evidence and express relevant participation. Yet human beings are limited in their ability to forecast correctly; indeed we have trouble even figuring out how history has produced our current conditions. As a result, rule-making tends to stymie human action and the improvement of civilization by foreclosing individual choice.

In fact the beauty of the traditional Anglo-American common law lies in its primary reliance on orders and its reluctance to employ an abundance of rules. The open legal texture enabled creative individuals to compose new and untried outcomes that, in a given number of instances, resulted in a much better life not only for the persons directly affected but also for a multitude of other beneficiaries. Thus individual conceit and the surfeit of rules join and promote a more closed society. Consider the result: an obvious diminution of human freedom and restraint on free individual action to solve problems. Empirically, the busybody inhibits the improvement of the general human condition. Why does that happen? Simply because each competent actor is more able to make better decisions affecting his person and his future than is any other individual. Free and purposive human beings effect better results when they have something personal at stake, and no person is sufficiently foresighted and wise to recognize all aspects of a problem and all possible outcomes.

Further, the age of the busybody contains a moral component and induces a moral decline of the individual. One grows by choosing, by selecting between alternatives, and by enduring the burdens of his poor choices as well as enjoying the benefits of his better selections. The busybody foreordains decisions by rule of law and in so doing diminishes the choice-making opportunities and growth available to his fellow members of society. In this fashion the busybody stunts individual growth and deprives the larger society of the benefits of unfettered productive and constructive human action.

If you spend any time on a social network, you’re bound to come across this video of Elizabeth Warren, who’s running for the U.S. Senate in Massachusetts. In her remarks she says:

There is nobody in this country who got rich on his own. Nobody. You built a factory out there? Good for you. But I want to be clear: you moved your goods to market on the roads the rest of us paid for; you hired workers the rest of us paid to educate; you were safe in your factory because of police forces and fire forces that the rest of us paid for. You didn’t have to worry that marauding bands would come and seize everything at your factory, and hire someone to protect against this, because of the work the rest of us did. Now look, you built a factory and it turned into something terrific, or a great idea? God bless. Keep a big hunk of it. But part of the underlying social contract is you take a hunk of that and pay forward for the next kid who comes along.

Just goes to show, you can start with a valid premise and end up with an invalid conclusion.

She’s right: When you live in a society you benefit in countless ways, material and otherwise. The language you speak and think in is a social institution and would be impossible without the presence of others. So is custom, which regulates our interpersonal conduct far more than the edicts (mistakenly called “laws”) of legislatures. And the few valid ideas among those edicts had their origin in bottom-up custom. (See my “The Rule of Lore.”) How about money itself? It is also an organic social institution. Of course today money is fiat paper controlled by government, but even that system has a foundation in the institution described by Carl Menger and Ludwig von Mises.

Social Animals

So we need not deny Warren’s premise. Human beings are social animals. We should revel in that fact. Frédéric Bastiat did in Economic Harmonies:

Let us take a man belonging to a modest class in society, a village cabinetmaker, for example, and let us observe the services he renders to society and receives in return. This man spends his day planing boards, making tables and cabinets; he complains of his status in society, and yet what, in fact, does he receive from this society in exchange for his labor? The disproportion between the two is tremendous.

Every day, when he gets up, he dresses; and he has not himself made any of the numerous articles he puts on. Now, for all these articles of clothing, simple as they are, to be available to him, an enormous amount of labor, industry, transportation, and ingenious invention has been necessary. . .

Next, he breakfasts. For his bread to arrive every morning, farm lands have had to be cleared, fenced in, ploughed, fertilized, planted; the crops have had to be protected from theft; a certain degree of law and order has had to reign over a vast multitude of people; wheat has had to be harvested, ground, kneaded, and prepared; iron, steel, wood, stone have had to be converted by industry into tools of production . . . — all things of which each one by itself alone presupposes an incalculable output of labor not only in space, but in time as well. . .

It is impossible not to be struck by the disproportion, truly incommensurable, that exists between the satisfactions this man derives from society and the satisfactions that he could provide for himself if he were reduced to his own resources. I make bold to say that in one day he consumes more things than he could produce himself in ten centuries.

What’s New?

Elizabeth Warren, then, has said nothing startling. This has been the (classical) liberal view of the market social order from time immemorial. But she places what should be a mundane observation in the service of a bad cause: higher taxes. That’s a non sequitur.

Let’s stipulate something before examining Warren’s mission. In today’s society, as in Bastiat’s, great wealth can be made by what Franz Oppenheimer, echoed later by Albert Jay Nock (pdf), called “the political means.” That is, many business people (preaching the gospel of “the free market”) make fortunes from government interventions that directly or indirectly, intentionally or unintentionally, obstruct entry into their industries or limit self-employment opportunities, allowing them to earn oligopolistic rents at the expense of consumers and workers. That’s a traditional classical liberal complaint about government and its connivance with business.

But that is not what Warren means. In the video she says nothing about corporate-state privilege or the long years of intervention that amount to the “subsidy of history.” She mentions only tax-financed roads, schools, and police — three of the worst “services” precisely because they are tax-financed government monopolies. (Roads do entail a subsidy to long-distance shippers, but she seems oblivious to that.) There’s an easy remedy for State-granted privileges: repeal. But like a good corporate-liberal, she prefers regulation to repeal. And as we know, George Stigler’s theory of regulatory capture tells us that the rules will tend to be written with the regulated industries in mind, if not with their active participation. (Not that other-minded regulators would know what to do.)

“[Y]ou built a factory and it turned into something terrific, or a great idea? . . . Keep a big hunk of it. But part of the underlying social contract is you take a hunk of that and pay forward for the next kid who comes along,” she says.

Produce the Contract

Has anyone seen this social contract that obligates you to surrender a “hunk” of what you produce under penalty of violence? Sorry, I don’t trust unwritten open-ended so-called “contracts” into which any advocate of government power may read conditions ex post. (The idea of social contract can be construed more sensibly. See this.) Moreover, why aren’t honest production and exchange of valuable goods counted as payment forward? Just as our living standard is the fruit of previous generations’ production, so today’s producers are helping to raise the living standard of the next generations.

Boiled down, then, Warren’s argument is that since everyone has paid taxes to provide services without which wealthy people couldn’t have made their money, they should pay more. How does that follow? She’d first have to show that they are paying too little now. She only assumes this. (See Steven Horwitz’s discussion of this matter.) That’s not good enough. And maybe the services are inferior and cost too much — wouldn’t we expect that from a protected monopoly?

She might respond that the presence of the deficit shows that not enough money is collected in taxes and therefore the wealthiest should pay more. Still not good enough. As she herself intimates, the George W. Bush years were marked by unfunded spending. That sounds like a problem of overspending, not undertaxation. Solution: Cut spending.

Law professors Frederick Tung of Boston University and M. Todd Henderson of the University of Chicago recently asked that question about the banking industry. They propose that bank regulators should receive incentive pay linked to banks’ performance. They argue that giving regulators a stake in the success of the firms they regulate will motivate them to make better decisions. Freakonomics blogger Matthew Phillips commented that Tung and Henderson “are essentially proposing giving regulators stakes in the banks they oversee, by tying their bonuses to the changing value of the banks’ securities. . . . The proposal would completely change the role of the regulator, from antagonist to partner.”

While this particular study is new, the idea is not. Every so often academics rediscover the superior incentives that private companies provide to ensure their employees work to advance the central mission of the organization – to overcome what is known in management parlance as the principal-agent problem.

The principal-agent problem occurs when individuals in a department of a firm face incentives to pursue departmental goals that conflict with the overall goals of the firm. For example, environmental compliance officers have an incentive to please environmental lobbyists and EPA regulators. In other words, they face a strong temptation to, as diplomats say, “go native.” Firms need incentive structures to motivate employees to resist and overcome that temptation.

Tung and Henderson seek to quantify and duplicate how private companies accomplish this so that public agencies can adopt similar structures – to advance the “public interest” rather than institutional self-preservation and advancement.

Big Difference

This may sound like a good idea at first, but there are inherent differences between the private and public (government) sectors that hinder its successful adoption by government.

Private firms have a clear objective – to maximize profits for shareholders. This requires managing risks and planning for the future. For example, a loan officer’s job is to not only make loans but to ensure that those loans are profitable. They must balance the risks of overly strict lending standards against the risks of overly lax ones. When government rushes in with explicit and implicit guarantees, this balancing task is distorted.

The problem with trying to adapt business-like incentives to a government agency’s overall focus is . . . government. Government cannot utilize market mechanisms because it is a monopoly by definition, and that creates incentives unique to State actors. In government the distortion is built in.

Perverse Incentives

Public Choice theory helps explain the incentives faced by those working in government. As Nobel Prize-winning economist James Buchanan, one of the founders of Public Choice, points out, “[T]here is no center of power where an enlightened few can effectively isolate themselves from constituency pressures.” In other words, actors within the bureaucracy cannot operate away from the political pressures of trying to please politicians and the voters who elect them. Thus institutional self-preservation wins out.

The government’s clumsy response to the financial crisis made the shortcomings of State regulation evident, but the problem is not new.

In fact this lesson should have been learned during the savings and loan (S&L) crisis of the 1980s and early 1990s. The Federal Savings and Loan Insurance Corporation (FSLIC), which was expanded greatly during that crisis, ensured that “smart money” was attracted to poorly managed S&Ls willing to offer high interest rates. The managers of these S&Ls recognized their bankrupt status, but they were being kept alive by a government guarantee.

A government-guaranteed entity isn’t really allowed to die until the government says it can. Until that time (which rarely arrives), the risks were transferred from the S&Ls and the depositors to the taxpayer. Indeed, S&L management shifted from small-town bankers to some of the world’s most, well, “creative” financiers. As a colleague at the time, Catherine England, noted, no system was better designed to attract “crooks, scalawags and sharp dealers” than the then-existing regulatory structure.

Responsive to Politics

Why didn’t regulators do their duty? Because the FSLIC was more responsive to its political leaders than to financial reality. House Speaker Jim Wright (D-Texas) argued zealously that Texas banks were not insolvent but illiquid.

Sound familiar? Zombie S&Ls stayed open far longer than they should have, and the S&L crisis was the result – with over a thousand failed institutions and an estimated cost to taxpayers of $124 billion.

Do Tung and Henderson believe regulators would have done a better job if their rewards for doing so had been greater? The rewards of government service are not necessarily economic. Avoiding trouble with lawmakers is a strong motivation on its own. So when asked to solve zombie S&Ls’ “illiquidity,” regulators could be counted on to bend to political pressure.

Wright left Congress many years ago, but his successors are doing as much damage today. The bureaucrats enforcing the slew of new regulations – from Dodd-Frank to Obamacare to CAFE on steroids – will face the same incentives as did the staffers at the FSLIC.

Markets work by rewarding the success of individuals who, at their own risk, venture forth and succeed – whether by brilliance or luck – in fulfilling unmet consumer needs. Bureaucrats, by contrast, are risk-averse and respond to political incentives. No “bonus” for making the right decision can change that.

Licensing, for example, prices poor people out of business.

Take taxis: in New York City, you have to buy a license, or “medallion.” New York restricts the number of medallions so tightly that getting one costs hundreds of thousands of dollars.

“There are not many black-owned taxis in New York City,” George Mason University economist (and Freeman columnist) Walter Williams told me. “But in Washington, most are owned by blacks.” Why? Because in Washington, “it takes $200 to get a license to own and operate one taxi. That makes the difference.”

Regulation hurts the people the politicians claim to help.

People once just went into business. But now, in the name of “consumer protection,” bureaucrats insist on licensing rules. Today, hundreds of occupations require expensive licenses. Tough luck for a poor person getting started.

Ask Jestina Clayton. Ten years ago she moved from Africa to Utah. She assumed she could support her children with the hair-braiding skills she learned in Sierra Leone. For four years she braided hair in her home. She made decent money. But then the government shut her down because she doesn’t have an expensive cosmetology license that requires 2,000 hours of classroom time—50 weeks of useless instruction. The Institute for Justice (IJ), the public-interest law firm that fights such outrages, says “not one of those 2,000 hours teaches African hair-braiding.”

IJ lawyer Paul Avelar explained that “the state passed a really broad law and left it to the cosmetology board to interpret.”

Guess who sits on the cosmetology board. Right: cosmetologists.

And they don’t like competition.

One day, Jestina received an email.

“The email threatened to report me to the licensing division if I continued to braid,” she told me.

This came as a shock because she had been told that what she was doing was legal. Twice, in fact.

No customers complained, but a competitor did.

One cosmetologist claimed that if she didn’t go to school she might make someone bald.

But this is nonsense—hair-braiding is just . . . braiding. If the braid is too tight, you can undo it.

The cosmetology board told Jestina that if she wanted to braid hair without paying $18,000 to get permission from the board, she should lobby the legislature. Good luck with that. Jestina actually tried, but no luck. How can poor people become entrepreneurs if they must get laws changed first?! Jestina stopped working because she can’t afford the fines.

“The first offense is $1,000,” she said. “The second offense and any subsequent offense is $2,000 each day.”

“It is not unique to Utah,” Avelar added. “There are about 10 states that explicitly require people to go get this expensive, useless license to braid hair.”

Fortunately, IJ’s efforts against such laws have succeeded in seven states. Now it’s in court fighting for Jestina, which, appropriately, means “justice” in her native language.

Once upon a time, one in 20 workers needed government permission to work in their occupation. Today, it’s one in three. We lose some freedom every day.

“Occupational licensing laws fall hardest on minorities, on poor, on elderly workers who want to start a new career or change careers,” Avelar said. “[Licensing laws] just help entrenched businesses keep out competition.”

This is not what America was supposed to be.

Playing Chicken

Josh is a Mennonite friend who happens, by the grace of native talent and a powerful work ethic, to produce magnificent chickens. Raised on green growing pasture, they are never medicated, never fed artificial supplements or genetically selected to grow abnormally fast. They develop rich golden fat and a deep flavor, characteristics that have been more or less lost in modern, streamlined, highly efficient poultry production. Not surprisingly, Josh’s chickens are in high demand among food cognoscenti and fine restaurants. A couple of years ago I began bringing Josh’s chickens to my farmers’ market stand to sell alongside our equally popular grassfed beef. Josh and I, in a classic entrepreneurial endeavor, have made these wholesome chickens available to happy, discerning customers who would otherwise be unable to justify a three-hour commute to buy a bird for dinner.

Josh processes his chickens on his farm under a legal exemption allowing him to avoid industrial (and expensive) processing plants. Each chicken he produces is clearly labeled as to origin, method of production, and added ingredients (none); the label also cites the statute that allows him to operate unmolested.

Recently he was informed by the Food Safety Inspection Service, the regulatory arm of the USDA, that he faced a “situation.” They had discovered a chink in the otherwise protective “non-molestation” statute. Because he is marketing chickens to an intermediary (me), his product is therefore rendered illegal and he must desist. In a disturbing addendum the inspector also let slip that the USDA would be willing (“free of charge”) to take over inspection of his facilities and that they would be “more than happy to help him get going,” presumably in the chicken business.

The same authority willing to allow a company to distribute (and I’m not making this up) a neon-green sugar drink with the word “sweetener” (in quotes) on the ingredient list believes that customers cannot be trusted to buy a natural chicken from a reputable farmer.

Raising the Roof

I have an old shed I’d like to turn into an office. It’s a small, uncomplicated project. I do not intend to host conventions there or otherwise expose innocents to my construction acumen.

I could use a hand, so I called a man advertising his handyman services on a placard outside the feed store. We talked it over; he needed capital and I needed labor; we had a deal. I had expected to be hammering on joists this morning instead of this keyboard but for the fact that he didn’t show up today. Why? The county, vigorously addressing this “situation,” had torn down all his signs (including one in front of his home), citing him for neglecting to indicate his contractor’s license. Fair enough, you say; he knows the rules and got burned. So why the stink?

Well, here is a gentleman in his mid-50s with more than 25 years of construction experience who was a licensed contractor in Florida before moving to Arizona. For more than six months he has been fighting to gain the requisite licensing. He is obliged, among other onerous duties, to provide 25 references spanning his entire career and from across a continent before his application can enter the waiting list. He estimates his application will cost $10,000 and take another six months. He is afraid to work with me, even as a “tutor,” because he has been told that counties often set people up to entrap them.

Once again presumptuous authority has stepped between educated, intelligent adults to prevent free, fully cognizant transactions. Am I a pathological obediphobe to find such meddling unsavory?

Even if these cases turn out to be simple errors in communication or an innocent overstepping of authority, the damage has already been done. The perception alone is enough to chill behavior. In relaying these injustices I have now wasted hours that could have otherwise been spent creating outstanding beef; Josh is reducing his next order of chicks; and an out-of-work man with a lifetime of skills sits idle wishing for work.

Perhaps these are just the fickle vagaries, the marginalia of an otherwise appropriate regulatory regime. But I’m afraid they represent a deeper, metastasized, problem. The late Mr. Jefferson, that “intellectual voluptuary” according to his Big Government nemeses, explained that government’s only purpose is to secure natural rights. Governments, he believed, exist to protect life, liberty, property, and little else. It’s probably archaic of me to wish for a return to such a limited view, but I can’t help it. The kind of absurd oversight now considered standard practice feels fundamentally unjust.

It would be wonderful to live in a world where selling a chicken and remodeling a shed weren’t rife with official allegations or burdened with State prohibitions.

As described in William J. Bernstein’s book The Birth of Plenty: How the Prosperity of the Modern World Was Created, France’s minister of finances under Louis XIV from 1665 to 1683, Jean-Baptiste Colbert, worked tirelessly to expand commerce by improving his country’s roads and canals.  Unfortunately, trade was hindered by more than potholes — a complex system of internal tariffs was throttling commerce.  Colbert tried to dismantle the tariffs but was only partially successful.  After his death, “all fiscal restraint was lost.  By the end of Louis XIV’s reign three decades later, the State had doubled the tolls on the roads and rivers it controlled, and the nation that had once been Europe’s breadbasket … was bled white….”  Bad regulations trumped good roads.

Prometheus Bound (in Red Tape)

During the Great Depression, Franklin Roosevelt initiated massive public-works programs to improve the nation’s infrastructure in hopes of putting people back to work and jumpstarting the economy.  The construction efforts were staggering.  According to Conrad Black:

The government hired about 60 percent of the unemployed in public-works and conservation projects that planted a billion trees, saved the whooping crane, modernized rural America, and built such diverse projects as the Cathedral of Learning in Pittsburgh, the Montana state capitol, much of the Chicago lakefront, New York City’s Lincoln Tunnel and Triborough Bridge, the Tennessee Valley Authority, and the heroic aircraft carriers Enterprise and Yorktown. They also built or renovated 2,500 hospitals, 45,000 schools, 13,000 parks and playgrounds, 7,800 bridges, 700,000 miles of roads, and a thousand airfields.

Yet these extraordinary accomplishments were not enough to pull the nation out of the Depression. Neither were the millions of jobs generated by this monumental work.

Not only did the work direct resources away from the private sector but, worse, Roosevelt unleashed a regulatory blizzard on the nation’s private sector, significantly increasing the risk of doing business in the country.  Higher personal, corporate, excise, and estate taxes; wage and price controls; production restrictions; antitrust lawsuits; and constant experimentation provided few incentives for companies to expand.  As in Louis XIV’s France, an improved infrastructure could not revive commerce in the face of stifling government regulations.

High-Speed Rail to Nowhere

Today, Barack Obama is touting high-speed rail and other infrastructure improvements as keys to economic renewal.  But if massive infrastructure investments were not enough to turn the economy around in the 1930s, they are far less likely to do so today.  Because Roosevelt was starting from a lower base, his improvements would have had a far greater impact on the economy of his day than would similar work done now.  Furthermore, the lighter regulatory burden in the 1930s meant that there were projects then that truly were “shovel ready.”  Today, environmental impact studies, possible archeological finds, and nuisance lawsuits may stall construction for years or halt it completely.

The real roadblock to economic growth is the burgeoning regulatory burden that President Obama, like Roosevelt before him, has placed on business.  According to a study by James Gattuso and Diane Katz, “[T]he Obama Administration imposed 75 new major regulations from January 2009 to mid-FY 2011, with annual costs of $38 billion.”  Hundreds of additional regulations will pour forth from Obamacare, Dodd-Frank, and proposed EPA greenhouse gas restrictions.  All this is on top of an already monumental regulatory burden imposed by government.  According to a Small Business Administration report (pdf), the cost of regulatory compliance was over $1.75 trillion in 2008 alone.

Goods, people, and information will not flow freely across a nation, regardless of the quality and extent of its infrastructure, if taxes and regulations block their flow.  Trade perished in France as Colbert’s improved roads and canals were made all but useless by high internal tariffs.  Some 700,000 miles of new and rebuilt roads were not enough to move commerce past the regulatory roadblocks that Roosevelt erected.  President Obama’s proposed high-speed trains will not pull the country over the mountain of regulations that has been created in the decades since the Great Depression and that Obama has raised to new heights.  A bridge wrapped in red tape is truly a bridge to nowhere.

I made this observation a few years ago while attending my oldest son’s first Taekwondo belt test. The man was about my age, and he was struggling through his routine. His jumps were low and his kicks soft. In fact it appeared the bending force applied by his master’s strong arms did more to break the board than the thrust of the man’s kick. That it took seven tries to split the pine board along its grain showed a true lack of skill and snap. Nevertheless the school awarded him a black belt.

A video on the case against O.J. Simpson, which I recently watched, stirred this memory. The video hypothesized an alternative sequence of the events leading up to the deaths of Nicole Brown and Ron Goldman. In one scene two martial arts experts dramatized their version of the fight between Goldman and his assailant. A central assumption was that since Goldman was a black belt the fight would have approximated a Bruce Lee film – as if every black belt is Bruce Lee. But what is a black belt? And do all black belts have the same abilities, strengths, and so on? Are they all Bruce Lee?

Of course not. The black belt is a product of the free market. Anyone can form a “school” and award belts of any color. However, individuals determine the value of a belt, and the market decides whether the school succeeds or fails.

Belt Factories

Some schools are noted for their high standards while others lean more toward belt factories – places where a nonreturned check is the only attribute required to obtain the next belt. Students align themselves with the school that meets their individual wants. Some desire to earn their belts in the dojang with sweat and tears; others would rather take an easier route. All end up, by their demonstrated preferences, benefiting from this situation.

The man I observed can tell family and friends that he is a black belt. And if they imagine Bruce Lee-type skills … well, that is their business.

It would appear that we have a market failure of sorts: folks of wildly varying skills claiming to be black belts, some able to give a Bruce Lee performance, others looking more pathetic than potent. Shouldn’t government solve this supposed market failure with licensing requirements and other regulations?

The medical profession is highly licensed and regulated. A belief exists that if the State did not license doctors and nurses, incompetent medical professionals would be indistinguishable from competent ones. And to make matters worse, incompetent doctors and nurses would flood the market, and death and despair would result. Of course this assumes the consumer is a mindless sheep with no ability to identify and exercise preferences. But a simple survey of the market disproves this notion.

Fedako Certified

The market for information-technology professionals is relatively unregulated. Anyone can claim to be proficient (a black belt, so to speak) in Microsoft software – just add it to your resume. In fact we could work out a deal where you claim to be Fedako certified in the software. However, only those who meet certain requirements can claim to be Microsoft certified.

So is there any difference between the market for certification in Microsoft software and the market for black belts in martial arts? No. Fedako certification is not being demanded because potential consumers (those seeking certification) see no value in it. Employers want Microsoft certified employees, so those seeking their employment (consumers of Microsoft certification) want it as well.

If employers looking to hire black belts in Taekwondo demanded a certain level of expertise, they could decide to accept only applicants with black belts from schools of martial arts that hold their students to that level. Some schools would align to the new standard while others would not. Or the employers could create their own individual tests to validate skills. Either way the market would not fail the employer qua consumer.

Certification Demand

The same would hold in the medical profession absent government regulations. Consumers of medical services – patients, as well as insurance companies and employers, and more – would demand certification to show expertise. This would force most if not all medical and nursing schools to set a standard that met that demand, as I can imagine only a few students paying for an education that provides no likelihood of income.

It is probable that various levels of certification – different colored belts, so to speak – would exist. This would allow each consumer to satisfy his desire for a certain quality of medical service given our world of scarcity. And this is not a market failure. It is in fact a market success.

So if someone without Bruce Lee skills wants to buy a black belt, let him. And if someone else without competent skills wants to be called doctor, let him. These personal decisions are none of our business. Liberty means the freedom for some to claim black belt status and the freedom for others to ignore it.

The minimum amount of recovered funds that can earn a reward is $1 million, but the sky’s the limit on the upside.  The whistleblower gets to keep 10-30 percent of the amount collected, including fines, interest, and disgorgement of ill-gotten gains.  We’re talking about big game here, with awards conceivably topping $100 million.

Huge Category

Eric Havian, an attorney with a law firm that represents whistleblowers, noted in an interview with the San Francisco Chronicle‘s Kathleen Pender that the securities laws cover a “huge category of bad conduct,” such as illegal insider trading, cooking the books, market manipulation, stock option back-dating, false or misleading disclosures, and the deceptive sales of securities. Indeed, almost anything potentially can be illegal, and these vaguely defined offenses leave much room for government mischief. As for insider trading, this is a practice that does little harm and may actually provide benefits to small investors. (See my Freeman article.)

If corporations felt they needed limits on insider trading or other conduct to attract shareholders, they could write prohibitions into their bylaws so that violations, if not settled internally, could be remedied under civil law.

The mind boggles at the incentives the whistleblower program establishes.  Law firms must be gearing up already to coach whistleblowers in the fine art of identifying and documenting actions that can be gussied up into plausible cases.  It would make sense for law firms to take cases on a contingency basis because this sort of lawyering potentially could be very lucrative.  The SEC staff, concerned primarily with covering its collective rear end, will shy away from dismissing all but the most frivolous cases.

The road to riches will not be short or direct.  Many years could elapse, if only because of bureaucratic inertia, between the time of filing and the bestowal of an award. “There will be more people struck by lightning in a given year than will get a check from the SEC in the next five to ten years,” cautioned Tim Mazur of the Ethics and Compliance Officers’ Association.  But once the first awards hit the headlines, “a lot of people will start paying attention,” he added (San Francisco Chronicle).

All whistleblowers run the risk of retaliation from their employers, but in today’s climate, this risk seems minimal. Besides, complaints may be filed anonymously.

Forget Internal Review

Whistleblowers will lose their incentive to pursue complaints through their companies’ internal review process, an avenue that could correct any genuine wrongdoing relatively quickly.  With such a massive potential pot of gold beckoning, why not wait and let the supposed wrongdoing fester for a while?

To be sure, the SEC rule makers are aware of at least some perverse incentives.  The website announcement contains a section headed, “Avoiding Unintended Consequences,” which excludes certain people from eligibility. The SEC also says information presented must be the whistleblower’s independent knowledge or analysis.  But these limits seem to leave enough space to drive a truck through, and the truck drivers are revving their engines.

Of course corporate officers will be aware of the new incentives for whistle-blowing, which may well make them more cautious about taking on the risks of new or expanded production.  Too bad.  Investment is exactly what the country needs to get out of its economic funk. New uncertainty will further delay recovery.

Double Standard

Meanwhile, government whistleblowers aren’t doing nearly so well.  Thomas Drake, a National Security Agency employee, found hundreds of millions of dollars being squandered on failed programs and tried to expose them. He did not leak any classified information, and he tried informing his bosses, the NSA inspector general, the Defense Department inspector general, and congressional intelligence committees before taking his findings to the Baltimore Sun.  Rather than a pile of cash, Drake’s reward was an indictment on ten felony charges that could have gotten him many years in prison.  But earlier this month, following a New York Times article on his situation and a judge’s ruling that certain classified information which prosecutors wanted to use against him could not be kept under wraps, all charges were dropped in a deal in which he pleaded guilty to one misdemeanor.

A recent petition signed by 20 noted whistleblowers calls for rescinding a “Transparency Award” given to President Obama recently.  The President “has invoked baseless and unconstitutional executive secrecy to quash legal inquiries into secret illegalities more often than any predecessor,” the complaint noted.  “Ignoring his campaign promise to protect government whistleblowers, Obama’s presidency has amassed the worst record in U.S. history for persecuting, prosecuting and jailing government whistleblowers and truth-tellers.”

But hey, we should just be glad the feds are protecting us from those nasty corporate insiders.

The usual dichotomy is between the “unregulated” or “deregulated” market and the “regulated” market, which includes significant government intervention.  Advocates of free markets have long made the case for the advantages of unregulated markets and exposed the problems associated with regulation, often using spontaneous-order arguments.  The fundamental insight of economics from Adam Smith forward has been that free markets are capable of producing order without design.  We do not need “regulation” in the sense of State intervention for markets to generate socially beneficial outcomes.  And when we do attempt to “regulate” them through the State, the result is a variety of undesirable unintended consequences.

Order without Design

This is all correct, of course, but it misses an opportunity to emphasize even more strongly the idea that markets produce order without design.  The language of “unregulated” or “deregulated” markets makes it difficult to talk about order without design because those very words seem to suggest that there is no order to the marketplace. A “regulated market” in contrast sounds orderly.  I think we can get around this problem by arguing that free markets are in fact highly regulated and that government-“regulated” markets often lack any meaningful regulation.

Merriam-Webster offers this definition of “regulate” first:  “to govern or direct according to rule.”  It also includes a second definition: “to bring order, method, or uniformity to.”  One understanding of “regulated” is that some process operates according to a rule or rules and thereby is orderly.  This is the sense we use when we talk about a regulated physical process being predictable and orderly, or to describe something that repeats in predictable ways, for example, “our regular waiter” at the local restaurant.

In this sense, free markets are indeed highly regulated.  Economic theory demonstrates that free markets operate according to rules that we can recognize and understand.  These rules enable us to make what F. A. Hayek called “pattern predictions” about the behavior of markets.  We know, for example, that when price rises, all else constant, quantity demanded will fall, or that above-normal profits in an industry will bring new sellers into that market — even if we cannot predict either outcome precisely.  Market participants will not act haphazardly, nor will outcomes be chaotic.  People’s behavior is regulated by the laws of economics, which in turn produce orderly patterns.

Government attempts to improve on markets are often described as “regulation.”  In some sense this is accurate: Government does try to impose its own set of rules that are intended to produce something more orderly in the eyes of the regulators.  In addition, economists can make similar pattern predictions about the unintended and undesirable results of that regulation, for example that a price ceiling set below the market-clearing price will produce a shortage.

State Reduces Order

However, we could also argue that such intervention reduces the level of regulation in the market because intervention invariably puts a great deal of discretion in the hands of both the “regulators” and those being regulated.  Are “regulated” markets more predictable than “unregulated” ones?  Is it easier for entrepreneurs to anticipate the actions of bureaucrats with discretionary powers or of competitors seeking profits according to the rules of the marketplace?  Is behavior more “regular” when firms are genuinely profit-seeking or when they attempt to manipulate the “regulators” through rent-seeking?  Bob Higgs’s concept of “regime uncertainty” captures how government intervention makes markets less regulated by undermining rules that generate predictability for participants.

In the free market truly competitive firms can’t simply do whatever they wish, at least not if they want to make profits and continue as viable enterprises.  Their desire to make profits regulates their behavior in ways that drive them to serve consumers by expanding and diversifying output and reducing prices.  In contrast to the implicit picture of “unregulated” markets in which firms can do whatever they wish, economics depicts the free market as governed by clear rules.

Years ago, Hayek pointed out that the question facing societies is not “to plan or not to plan” but “who should plan – individuals and firms or the state?” Similarly, the question is not to regulate or not to regulate, but which type of regulation – market rules or State discretion – works better.

In other words, free markets are regulated.