Government logic

The US House of Representatives has passed two bills that affect auto dealers, reports Automotive News today.

The Dealer Arbitration Bill is described as giving the 2,150 auto dealers whose franchises were canceled by GM and Chrysler more favorable terms in the arbitration of their disputes with the automakers. So the government decides to interfere in this business dispute not by establishing a mechanism for impartial resolution, not in support of its own to companies involved in it (GM and Chrysler), but by tilting the field against them and in favor of the dealers.

The second bill is the 1,279-page financial regulation legislation, which would create the Consumer Financial Protection Agency. Its intent is to protect consumers from making bad financial decision by regulating the sources of financing, such as mortgages, credit cards, etc. Given that the second largest financial transaction for most Americans is the purchase of an automobile, and that dealers are the biggest targets of consumer complaints about financing, one could expect the new law to regulate dealer financing as well. Not so--the bill excludes dealers-assisted financing from this regulation.


If your politics lean to the left, you're likely to accept the first bill but be appalled at the omission in the second. If your politics lean right, you would likely disprove of both. If you're an auto dealer...

Also today Automotive News reports that all of Toyota's North American factories are running over time to keep up with demand. Hm... if you're an auto dealer you might just want to get a Toyota franchise.

There are no regulated markets, only restricted freedom

"We need smart regulation!" This is the mild version of the outcry for regulating market activities that came after the economic slowdown and the housing and financial crises. The talk seems to be that markets went to excesses, that markets failed, and that markets need to be regulated in order to prevent people from losing too much money. I think that term "regulated market" is an oxymoron. It makes no sense.

Markets are simply an abstract notion that means the voluntary interactions of individuals, given any and all constraints, to solve their economic problems and desires. When we say we are regulating a market, it sounds rather impersonal, technocratic, and even appropriate. But we don't regulate the market, we limit people's freedom to interact in some way. The market is not regulated. When people have less freedom, they interact differently, taking into account their increased constraints. The resulting interaction is the market.

People always face some constraints. We don't have enough money or enough time to buy all of the things we want, so as consumers we give up some purchases. If we are offering products for sale, we are incapable of communicating to all potential customers the value of our product, so we give up some sales. These are real constraints. If the authorities tell us it is illegal to buy or sell some product, some of us stop trading that product and some simply hide from the authorities. The market is not regulated, the market is simply the individual's voluntary efforts to satisfy some economic need in the face of the given constraints, be they natural or government created.

So let's be clear, we don't regulate markets. Even "smart market regulation" plainly means restriction on citizens' freedoms.