Chapter 32: Regulation
Updated: 1/13/20
Christian Economics: Teacher's Edition
"When a man opens a pit, or when a man digs a pit and does not cover it, and an ox or a donkey falls into it, the owner of the pit shall make restitution. He shall give money to its owner, and the dead beast shall be his (Exodus 21:33–34).When you build a new house, you shall make a parapet for your roof, that you may not bring the guilt of blood upon your house, if anyone should fall from it (Deuteronomy 22:8).
The Bible always connects ownership with responsibility. In these two cases laws, the owner of real estate is made responsible for certain kinds of damages that result from his actions.
In the case of a pit, the owner is responsible if a neighbor’s animal falls into it and is killed. An animal cannot be expected to understand legal boundaries separating land. The beast wanders onto a neighbor’s land and is killed. The person who dug a pit and failed to cover it or fence it is responsible. By implication, if a neighbor’s small child is injured or killed, the person who dug the pit is responsible. The person who digs a pit is aware that animals or small children do not know about such dangers. They also do not know that they have crossed into another land owner’s jurisdiction.
The person who built a home with a flat roof was required to build a railing. Homes in the region had flat roofs. They were used for entertaining. If someone invited another person onto his roof, and the roof was not fenced, the guest was placed at risk. The owner was required to build a railing. He was liable if another person fell off the roof and was killed. This was the meaning of the King James Version's phrase “guilt of blood.”
This law did not apply to owners of homes captured in the conquest of Canaan. The victors were allowed to inherit the homes of the defeated Canaanites. The Book of Deuteronomy is the book of the inheritance: the fifth book of the Pentateuch. Point five of the biblical covenant is inheritance. So, a man who did not have the funds to build a parapet was not required to. The principle of inheritance was covenantally superior to the law of liability.
The person who had enough wealth to build a home had enough money to build a protective railing. The question is: Was this law enforced by a government official? There is no evidence that it was. The law made it clear to home builders that their homes were high-risk dwellings if they did not have railings. They were high risk for an accident, and they were high risk in a case brought before the elders after someone had died in a fall. The home owner was automatically guilty as charged. But if he refused to build a railing, and no one fell off, that was his decision. He could place a barrier to access to the roof. That would suffice judicially. The barrier onto the roof was the judicial equivalent of a railing.
There was no system of fines to the civil government under the Mosaic law. The only money collected by judges was for restitution to victims. So, what could have been the civil penalty for failing to build a railing? There is no biblical text identifying it. This means that the law was given as a warning. The penalty would be imposed retroactively after an accident. In the case of accidental death, the penalty would have been execution: eye for eye, life for life. The accident could have been prevented by a railing. The law mandated a railing. By failing to build one, the home owner was guilty of shedding another’s blood. “Whoever sheds the blood of man, by man shall his blood be shed, for God made man in his own image” (Genesis 9:6).
These two laws placed a premium on self-government under law. People knew in advance that they were liable. They had the laws of Israel read to them at the feast of booths or tabernacles every seventh year: the sabbatical year (Deuteronomy 31:10). The Mosaic law was simple enough for Israelites and resident aliens to understand them.
The Mosaic laws were case laws to guide judges in making their decisions. There was a written code of law. There was a hierarchical system of civil courts to make judgments (Exodus 18). The responsibility for making assessments of written laws and their application to specific cases began with individuals. The judicial principle of self-government under God’s law was the foundation of Israel’s system of justice. The judicial system was not a top-down bureaucratic system of administration. It was a bottom-up system of courts. The first court was the individual’s conscience. A person was supposed to bring judgment against himself before he committed a trespass, just as Adam was required to do. This principle of law enforcement is basic to biblical justice. “And if your eye causes you to sin, tear it out and throw it away. It is better for you to enter life with one eye than with two eyes to be thrown into the hell of fire” (Matthew 18:19).
These laws must not be used to justify the creation of a top-down bureaucracy that imposes regulations for safety’s sake. The legislature must declare liabilities after the fact. The case must be settled in a court. In the absence of legislation, a judge may determine liability. The modern bureaucratic system known as administrative law has grown in the West since 1900. Agencies write rules, and then they sue individuals. The bureaucracies supply the judges. In the United States, they are called administrative law judges. They are not independent. They are not part of the judiciary. They are part of the executive. They declare the laws, try the laws, and impose sanctions. In the United States, regulatory agencies publish over 80,000 pages a year of fine-print rules, three columns per page, in the Federal Register. The rules are written in legal terminology. They can be understood only by specialists. The individuals or businesses that are brought to trial must pay legal fees as high as $1,000 per hour per defense attorney. Most people capitulate. The agencies go after small businesses to get precedents. Then they demand that larger businesses comply.
Large established businesses have lawyers on retainer. They can afford to fight rules that will cost them a lot of money. They appeal to federal courts after their cases are decided against them in the administrative courts. These cases drag on for years. The agencies’ resources are drained. But large businesses are happy to see the agencies prosecute small competitors. This reduces the competitive threat from small businesses.
The agencies are almost autonomous. They are funded by the government. Few politicians pay any attention to what agencies do. The agencies’ employees cannot be fired except for criminal activity. They are protected by Civil Service laws. They are close to lifetime employees.
These government functionaries attempt to regulate entire sectors of the economy, agency by agency. The agencies do not agree with each other. There is no central plan. There are hundreds of these agencies in the United States government, each independent, each with the authority to issue regulations. There are at least 250 agencies and departments. There may be as many as 430. No one knows. This is why they are autonomous. Their rules govern production. This reduces the authority of customers. Businesses are afraid of violating rules. They do what they are told by bureaucrats, not what they are told by paying customers.
Unlike the governing principle of the Mosaic law, that every citizen heard the laws read publicly once every seven years, administrative law can barely be understood by specialized lawyers. There are so many rules issued by each agency that its bureaucrats can interpret them almost any way they choose. A bureaucrat can be arbitrary in picking and choosing which rules to enforce. He decides how it should be interpreted. The agency will back up its agents’ decisions most of the time: solidarity. Not to do so would be a public admission that the agency has made a mistake. No bureaucracy does this voluntarily.
The cost of regulations in modern economies is beyond accurate calculation. Businesses must spend money complying with the regulations, not complying with customers’ preferences. Regulations raise prices in some cases, or reduce production in others. Sometimes they do both at the same time.
Voters do not perceive that their choices are reduced by regulations. They do not understand that economic growth is reduced. They think they are being protected from exploitation by businesses. Instead, they are being exploited by bureaucrats.
A buyer assumes that he is being protected by the state from fraud or unsafe products. He assumes that he therefore has reduced personal responsibility for investigating the terms of a proposed exchange. This assumption of safety may not be true. True or not, he wants the state to protect him. This is the first step in his surrender of his personal responsibility, and therefore also his liberty, to the government. He has transferred to state bureaucrats the responsibility of protecting him. But by reducing his range of choices by forcing businesses to sell only on state-approved terms, the state may also suppress innovations that would benefit customers. The state’s bureaucrats determine what production processes and offers are best for customers. They substitute their judgment for the judgment of buyers and sellers.
Regulations impose higher costs on sellers. Some sellers attempt to pass these costs on to customers. Others fear doing this because some customers may seek less expensive substitutes. Businesses may respond by reducing output or lowering investments in research and development. These decisions lead to a reduced range of choices for customers. This is the best definition of lower wealth: a reduced number of choices for the same amount of money.
The public is unaware of this cause-and-effect process in wealth reduction. Voters do not know about the negative effects of regulations. They do not know what specific businesses do in response to the regulations. They are poorer than they would otherwise have been as a result of most regulations, but they do not perceive this. They know vaguely that regulations protect them. This is what regulatory bureaucracies tell them. The voters do not know the details. As the famous phrase says: “The devil is in the details.”
A seller benefits from sales. He seeks customers who will be willing and able to pay for his output. The better informed these shoppers are, the less range there is for cheating. Competition among sellers also reduces the range of cheating. The market process weeds out deception. For major cases of deception, the courts can rectify the situation. Buyers who believe they have been cheated can join together in class-action lawsuits. They can receive restitution if they win their case.
Regulation adds another component to the plans of businessmen. They must meet new requirements or else face administrative action by a bureaucracy, which will be adjudicated in the bureaucracy’s court. Only after the businessman has lost in this court is he entitled to appear to the conventional court system. It costs a lot of money to get the right to appeal the decision.
There is constant insecurity for a seller. There can be new a new rule issued at any time. A new rule can turn a profitable business plan into a loss. The seller must bear this cost.
The regulatory system protects large enterprises from competition from upstart companies. These new companies do not have the experience or the money to hire the legal talent necessary to fight new rules. This is a benefit for large companies. It creates barriers to entry. This reduces competition: sellers vs. sellers. The result is either higher prices or else reduced quality of the output of established businesses.
Over time, the procedures of businesses begin to resemble the procedures of bureaucracies. Bureaucracies establish the rules. Businesses must adopt the required procedures. Paperwork increases. The top-down hierarchy of state agencies replaces the customer-driven, bottom-up hierarchy of profit-seeking businesses. State agencies have guaranteed income from the government. Profit-seeking businesses do not. State agencies are governed by a rule book written in the past. A profit-seeking seller looks to future customer demand and future competition. He is future-oriented. The bureaucrat is past-oriented. This is a clash of institutional sanctions, a clash of financing, and a clash of cultures. To the extent that a seller conforms his operations to what bureaucrats mandate, to that extent are customers thwarted.
The seller seeks positive sanctions: future sales. He also seeks to avoid negative sanctions: future administrative fines. The greater the threat of administrative fines, the less he will be motivated by his image of future customers. We know from behavioral economics that most people fear a monetary loss more intensely than they savor a future gain of the same amount of money. We also know this from the Bible.
Or what woman, having ten silver coins, if she loses one coin, does not light a lamp and sweep the house and seek diligently until she finds it? And when she has found it, she calls together her friends and neighbors, saying, ‘Rejoice with me, for I have found the coin that I had lost.’ Just so, I tell you, there is joy before the angels of God over one sinner who repents (Luke 15:8–10).
The pencil industry is heavily regulated. Here is a description from a company that manufactures wood that is used in pencils.
The main consumer safety concerns with pencils relate to potential toxicity issues. These generally refer to potential exposures to lead in surface coatings, potential allergic responses to latex that may be found in some erasers and more recently Phthalates which are occasionally used as plasticizers in some surface coatings. . . . Pencils sold in the United States are subject to numerous safety regulations including the Consumer Product Safety Improvement Act (CPSIA), Labeling of Hazardous Art Materials Act (LHAMA) and several state based regulations such as California Proposition 65. Differences in consumer product safety regulations also exist from country to country.
Machinery used to make pencils is well known. Sometimes, the machines are ancient. Workers are used to them. There is so little innovation in the industry that there are few rules for bureaucrats to announce. This is not true of the industries that supply pencils with their raw materials and components.
There is another factor restricting regulations in this industry. There is no headline value for a bureaucracy by announcing a major improvement of the public’s safety from (say) pencil erasers. Worse, there might be derisive laughter. A bureaucracy wants the media and the public to cheer a new regulation. “We have been saved!” This is unlikely to happen in response to new regulations on the pencil industry.
There is therefore considerable liberty in the making and marketing of pencils. But because this market is of marginal importance to the economy, the degree of liberty here is not of major importance.
The biblical judicial system for civil government rests on the rule of law. The law was revealed by God. It is to be taught by fathers. It is to be taught by churches. It is to be taught by civil government.
The other major principle of biblical government is self-government. Law enforcement is supposed to begin with conscience. No society has sufficient economic resources to enforce the law where self-government is lacking. Only tyrannies attempt to do this. They always fail.
In the case of public safety, the two case laws that introduced this chapter make it clear that the laws were widely known before the conquest of Canaan. Individuals knew that they would be held personally responsible for deaths that came as a result of their negligence. The laws were clear. The inexpensive steps required by the civil government to eliminate this responsibility were also clear. Biblical civil law is not perfectionist. It is aimed at reducing major risks and major conflicts with a minimal expenditure.
In contrast to this system of law is administrative law. This approach to law is becoming dominant in the West. In 1983, legal scholar Harold Berman warned in the Introduction to his book, Law and Revolution, that administrative law threatens to destroy the Western legal tradition. It is a major threat to liberty.
Nowhere is this threat better organized than in the area of economic regulation. The vast expanse of administrative rules, the immunity of bureaucrats from being fired, the lack of oversight by legislators, the complexity of the rules, the judicial arbitrariness of the bureaucrats, and the political immunity of the agencies to budget cuts all combine to reduce liberty.
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