A reader of my blog piece yesterday wrote to me via email and quoted me from my piece: "'Most people don't realize that regulation is not about preventing harm to people.' I'm guessing that you meant '...regulation is not just about preventing harm....'" Dear reader, I actually did mean that the purpose of regulation is to permit harm. Here's why.

Let's say that Company "X" produces widgets, and in the process of producing those widgets they release byproduct "Y" into the atmosphere. It turns out that no other known manufacturing process can produce widgets nearly as inexpensively as the one Company X uses. Non-profit organization "Z" lobbies Congress to create legislation outlawing the use of "Y" in manufacturing, thus creating a new regulation, but Company X's own lobbyists argue that banning the use of "Y" in manufacturing would harm the economy. Congress ends up compromising by creating tough, new legislation that doesn't ban the use of "Y" in manufacturing entirely but does impose stringent new standards in its use in manufacturing.

Most people would look at the above scenario and conclude that the legislation was intended to prevent harm to people, but they'd be wrong. Look at the result. Company X still gets to release Y into the atmosphere, but now they do it in smaller quantities and must file various kinds of paperwork and pass various inspections in order to do it. Put another way, the legislation has become a permit to harm others. Further, even the original legislation proposed by non-profit Z assumed that such a compromise would happen. If they really wanted to prevent harm, their original proposal would have said, "No one may release Y into the atmosphere," but that's not what it said. Instead, the original proposal chose to involve itself in the manufacturing process. It didn't ban any emission of Y into the atmosphere, just Y emitted during manufacturing. By opening the door in this way, Z tacitly agreed that there were times when emitting Y into the atmosphere were unavoidable.

The net result is that only wealthy company X can afford to meet the new regulation, yet their product continues to be manufactured at a reduced price compared to other manufacturing methods. They, of course, will continue to rail about he unfairness of the new regulations, but in reality they smile secretly because they know that it's now much harder for a new startup to take away their business from them by engaging in the same form of manufacturing. In other words, they benefit from the new regulation while simultaneously suffering under it.

Meanwhile, ordinary people continue to suffer from the reduced emission of Y into the atmosphere. The politicians crow about how they stood up to the tough business and its lobbyists, while Z brags to its supporters about its great success in fighting the use of Y in manufacturing. Yet, the harm continues.

If it had been the intention of the politicians and the lobbyists to prevent people from being harmed by emitting Y into the atmosphere, they could have simply banned it entirely. They chose not to do so.

The same thing happened in the early 1900s (and at the times of every other financial crisis in America's history). Congress and the lobbyists on both sides of the aisle refused to ban legalized fraud. None of them even publicly recognized such fraud as the root cause of the problem. Instead, they chose to regulate it, thereby permitting certain parties from engaging in it while preventing others from engaging in the same behavior. If a behavior is harmful, then no one should be permitted to engage in it. Witness what happens when certain parties are licensed to harm others because they are considered by the law to have a history of behaving "more responsibly" than others. Witness the utter depravity of regulation.