It seems to me that Callisthenes has some valid points. There is definitely a sweet spot where safety, wage rates, and labor markets converge. Greater safety standards should mean larger labor markets, and thus, lower wages. Conversely, poor standards means smaller markets, higher wages. Safety standards are more likely to be fixed costs, while labor costs (especially at the lower skill levels) are generally variable costs. The greater investment spending is to consumption, the better able businesses are to hurdle fixed costs to improve safety and be more profitable in the long-term.
The problem is that markets don’t necessarily optimize for the long-term. This is especially true when the market is fueled more by artificial credit for investment than genuine credit. As Mises has shown, artificial credit cannot change the investment to consumption ratios of the market. Making investments as though the ratios are changed will simply lead to massive malinvestment. Additionally, the main selling point of artificial credit and inflationary monetary systems is the money illusion. This leads the lesser educated to believe that they are receiving more money in real terms than they actually are. This is one of the largest reasons why unskilled workers are the most harmed by such policies. Their prices increase faster than their wages. While minimum wage law prevents us from seeing the complete effects of such a policy, we can at least notice that minimum wage decreased in real terms for nearly a decade prior to the last increase without increasing unemployment significantly. (Of course, I’m using government-defined unemployment, which may be subsidized or voluntary unemployment rather than real unemployment.) Rather, if lower-skilled workers were given a better monetary policy, they would be able to save and invest more of their earnings, which would allow greater opportunity, in choice of workplace and products (and in choosing to labor for income or to invest for income).
Many economic problems are ones of time-scales. Why do people invest in Ponzi schemes? Why did wildcat banks exist? Such practices promise quick wealth for both parties, at the expense of massive risk. I think it is immoral to prevent people from entering into such actions, but it is virtuous to simply spread information about the risks. Stupidity can only be fought by knowledge of consequence. Whether this is directly or indirectly learned is up to the individual actor. Yet, it is HIGHLY IMMORAL AND ECONOMICALLY PERVERSE to hold the wise and innocent responsible for the bad decisions of others.
Anyway, it is easy to freeze frame moments of time and say IF. But we really can’t know. We can’t test two different policies in the real world, for the same market, at the same period of time. We can’t say that some decision that wasn’t made would have been problem-free or even better than what was chosen, except in theory.
When we talk about regulation, we often simply think that no regulation is simply the government not bothering to do its job. Our theoretical assumption is that the only difference in the market is the actions of the regulators. This is too shallow of an analysis. The government has collected the taxes that pay the regulators. The market no longer has these funds at its disposal. This is a market distortion. If those taxes weren’t collected, would they be invested or spent on consumption? Maybe they’d better safety standards; maybe they’d make them worse. There is an endless stream of complexity to suggest consequences from a few simple decisions. Yet, we can still average-out the market, especially over long periods of time.
I am convinced that government regulation has three problems that prevent if from being beneficial in general, in the long-term.
One, it is inefficient. The money must be taxed away. I can’t tell you if this means more or less money for this or that class and what they’ll do with it. Our tax structure is tied into so many things, with so many exemptions, and then there’s tax evasion. What I do know is that it deprives the market of power. I think the free actions of concerned parties will create better prosperity than some planned economy. In that safety regulations are performed by politically-protected bureaucrats paid by involuntary taxes, I would assume that their regulations are out of sync with the market’s expectations for safety standards, especially given the size and scope of government. Further, I would assume that these regulations are unevenly enforced between competitive businesses. All these factors mean scarce resources are being allocated in a manner that does not serve the market’s desires (if one business is given monopolistic privilege, this is certainly not in the general market’s favor). This simply means there is inefficiency. Even a small amount of inefficiency can be very consequential in the long-run. The greater the inefficiency (between the cost of government regulation and market regulation), the less the desirable effects of the regulation will be performed, while the greater the costs (in the productivity of the economy) will be.
Second, passing responsibilities off to others creates moral hazard, promoting continued ignorance and poor market decisions. If the market refuses to identify unsafe products at some point in time, it does so at its own risk. If the market ends up displeased with its decisions, it will not continue them. At an individual level, this means those who choose poorly will either die off (either literally or in terms of market power), constantly being subject to greater and greater risks and costs (such as you described in the costs of trying to hold a business liable for damages…and in medical/quality-of-life costs). The long-term effect of allowing workers to work in unsafe environments and the market to buy unsafe products is the gradual lessening of such choices. In the absence of government regulation, there may be some small terrible outcomes; but from what I understand, every large-scale economic or social problem caused by “the free market” actually stemmed from unseen consequences of other government policies, which had distorted the market away from being free. My point here can be compared to welfare, which has shown no indication of reducing societal need, but rather has increased it. In other words, if the problem is the combination of freedom with stupidity, we are better off keeping the freedom and letting the stupidity harm itself out of existence, then the other way around. The more likely people are to resort to stupid actions, the more likely they will be able to perform them, even in the face of prohibition.
Third, prosperity builds prosperity. If the absence of government regulations leads to greater economic activity, production, and more investment opportunity, it seems that several things will happen. Workers will be more productive, having greater access to capital resources. This will increase their wages. This gives laborers more leverage to accept lower wages in a safer environment. Also, this allows for greater competitive enterprise, in both capital and consumer goods industry. This reduces cost. In the long-run, a highly productive economy will eliminate the problems altogether, constantly improving both safety and production costs. Both government-regulated and free-market can get to this point, but I would wager the free market gets there quickest without any large problems in human suffering or oppression.
I tend to see trends where liberals (Democrats) argue for more regulation, especially when some regulation is removed and problems occur. But the problems aren’t society-wide issues. Enron and Worldcom, for instance, were not indicative of the entire stock market. Regulation tends to make them more general problems. Sarbannes-Oxley has taken the possible pain stemming from criminal actions of specific actors and turned it into real pain spread across the entire public corporate sector. Liberals fail to realize that regulation MUST prohibit the market from doing “good” activity. Besides the distortions and inequalities in competitive opportunity it creates, the mere fact that it requires taxation to fund necessitates that the market cannot perform some productive, mutually-beneficial activities. Often, regulation leads simply to greater problems, then greater regulation, and so on, until you spend vast amounts of effort prohibiting desirable behavior…then when the market “fails,” a proposal to nationalize industry comes about. If regulation had no cost, and only prevented bad decisions, it wouldn’t be hard to rally behind, even if it does indeed limit economic freedom. But it could still have negative consequences if it allows economic ignorance to flourish.