Police, Courts, and Prisons

Part 12 – The hidden costs of Authoritarian Law

Lee Friday

I recommend reading Parts 1 through 11 before reading this essay

Public Interest …… Public Safety …… Consumer Safety …… National Security …… The Common Good. These are the catchphrases used by politicians to elicit public support for new policies and legislation. However, political actions produce outcomes which are often the exact opposite of political proclamations. Contrary to its verbal expressions of concern for citizens, the government actually sacrifices the personal safety and security of citizens, as it fails to solve the majority of murders, rapes, and robberies (see Part 8). Clearly, political incentives lie elsewhere.

Perhaps I am too simple of mind, but it seems to me that all members of a community would wish to devote sufficient resources to ensure their personal safety and security before they devote any resources to improving other aspects of their lives. However, authoritarian lawmakers insist – by their actions, not their words – that we sacrifice personal safety and security in order to devote resources to efforts which they undertake (legislation), and which they define as adding an element of safety to these other aspects of our lives.

Thus, resources are devoted to the creation and enforcement of other laws, the violation of which do not produce victims. There are no victims because these laws are arbitrary rules of behaviour designed to benefit special interest groups (Part 9). As such, it is decided by the State – again by its actions, not its words – that the creation and enforcement of these rules is a much higher priority than keeping citizens safe from murders, rapes, and robberies.

GOVERNMENT  DOES  NOT  RESPOND  TO  THE  WISHES  OF  ORDINARY  CITIZENS

Political interests, not evolving customs, dictate new law creation. That is the essence of authoritarian law. However, because politicians require some degree of public support, they constantly assure the public that the public interest is their only justification for the passage of new legislation. Most citizens automatically accept this argument at face value – it is easier to believe than to think. As the great twentieth century economist Ludwig von Mises wrote “It is a fact that no paternal government, whether ancient or modern, ever shrank from regimenting its subjects’ minds, beliefs, and opinions.”[1] Likewise, Professors Martin Gilens and Benjamin Page wrote “We know that interest groups and policy makers themselves often devote considerable effort to shaping opinion.”[2]

This essay discusses the exorbitant cost of authoritarian law, which is absorbed by every member of society, taxpayer or not. Before we address these costs, and to prepare the reader for the shock, it will be helpful to understand how it is that such massive costs can be imposed on people who believe they control government policy through regularly scheduled democratic elections i.e. majority rule. The plain truth is that voters believe they exercise control through the electoral process, but they do not.

As noted in Part 9: Voters might ‘kick the bums out’ and put a new party in control, but the new party is still an authoritarian party. Any visible improvement is marginal at best. Powerful special interests are still calling the shots. The players may change but the fraud continues.[3] Democratic elections create the illusion of control. Vote if you wish, but it makes no difference. Write letters, emails, and make phone calls to your elected representative if it makes you feel better. You might receive a polite reply, but it changes nothing.

Martin Gilens is Professor of Politics at Princeton University. His research examines representation, public opinion, and mass media. Benjamin I. Page is Gordon S. Fulcher Professor of Decision Making at Northwestern University. His research interests include public opinion, policy making, the mass media, and U.S. foreign policy. In September 2014, Gilens and Page published a study in Perspectives on Politics, titled “Testing Theories of American Politics: Elites, Interest Groups, and Average Citizens.” Here are a few highlights from their study:

. . . The central point that emerges from our research is that economic elites and organized groups representing business interests have substantial independent impacts on U.S. government policy, while mass-based interest groups and average citizens have little or no independent influence. . . .

. . . As to empirical evidence concerning interest groups, it is well established that organized groups regularly lobby and fraternize with public officials, move through revolving doors between public and private employment, provide self-serving information to officials, draft legislation, and spend a great deal of money on election campaigns. Moreover, in harmony with theories of biased pluralism, the evidence clearly indicates that most interest groups and lobbyists represent business firms or professionals. Relatively few represent the poor or even the economic interests of ordinary workers . . .

. . . Clearly the median citizen or “median voter” at the heart of theories of Majoritarian Electoral Democracy does not do well when put up against economic elites and organized interest groups. The chief predictions of pure theories of Majoritarian Electoral Democracy can be decisively rejected. Not only do ordinary citizens not have uniquely substantial power over policy decisions; they have little or no independent influence on policy at all. . . .

. . . These results suggest that reality is best captured by mixed theories in which both individual economic elites and organized interest groups (including corporations, largely owned and controlled by wealthy elites) play a substantial part in affecting public policy, but the general public has little or no independent influence. . . .

What do our findings say about democracy in America? They certainly constitute troubling news for advocates of “populistic” democracy, who want governments to respond primarily or exclusively to the policy preferences of their citizens. In the United States, our findings indicate, the majority does not rule—at least not in the causal sense of actually determining policy outcomes. When a majority of citizens disagrees with economic elites or with organized interests, they generally lose.[4]

COSTS  OF  AUTHORITARIAN  LAW – QUICK  RECAP

The costs of authoritarian law can be itemized as follows:

1) Crimes against people and property impose costs on identifiable victims, for which authoritarian law does not hold offenders accountable. Total costs are unknown, though likely considerable.

2) In response to the offences in #1, additional costs are imposed on taxpayers, including the victims themselves, for the maintenance of police, court, and prison bureaucracies which are largely ineffective and often counterproductive. In Canada, the total cost (federal, provincial, municipal) in 2012 was $20.3 billion[5], or about $600 per capita.

3) Costs are imposed on offenders through incarceration in violent, drug-infested prisons.

4) Thousands of laws (regulations) across all three levels of government impose massive costs on all citizens. No citizen escapes the burden of these costs, while the benefits flow to a minority of individuals (special interests). These costs fall into two categories: Compliance Cost and Opportunity Cost, which will be discussed below.

Thousands of regulations create benefits for special interest groups, though politicians assure us benefits flow to the public. Similarly, regulations are enacted, we are told, out of concern for public safety. However, as Laura Jones and Stephen Graf of the Fraser Institute wrote in their report on Canada’s Regulatory Burden:

Concern over smaller and smaller risks, both real and imagined, has led us to demand more regulation without taking account of the costs, including foregone opportunities to reduce more threatening risks. If the costs of policies intended to reduce risks are not accounted for, there is a danger that well-intentioned policies will actually reduce public well-being.[6]

The report included these comments from editor Kristin McCahon:

. . .  there is a rule regulating just about every conceivable human activity or enterprise. But often, we don’t realize just how invasive—and costly— those rules and regulations are. . . . Because of regulations and their cost, there are a lot of things I won’t replace or build. I would rather cook in a smallish kitchen with older appliances than invite city inspectors in to cluck and fuss over my outdated wiring and unfortunately situated plumbing. By not undertaking my renovations, I don’t employ the tradesperson who would do the work, and I don’t buy the necessary supplies at the building centre. In fact, a lot of activity doesn’t take place in my life because of regulations. By extrapolation, a lot of productive activity doesn’t happen in Canada because of regulations.[7]

McCahon is correct. A lot of productive activity is prevented by government regulations.

COMPLIANCE  COST

What is the cost of all these different types of regulations in Canada? This was addressed by Jones and Graf in their report:

Over the 24-year period between 1975 and 1999, over 117,000 new federal and provincial regulations were enacted, an average of 4,700 every year.

In fiscal year 1997/1998, the private sector spent an estimated $103 billion to comply with federal and provincial government regulation . . . The cost of regulatory compliance— though often imposed on businesses — is borne largely by consumers since businesses pass on much of the cost of regulatory compliance as higher prices for goods and services. In 1997, regulatory compliance cost individual Canadians an estimated $3,425, or $13,700 per family of four . .

. . . The embedded costs of regulatory compliance thus exceeded spending on every item except shelter in Canadian households’ [average] after-tax budgets in 1997.[8]

Most Canadians are unaware of the price they pay for government regulations – $3,425 for each person in Canada every year, reflected in higher prices for goods and services. Since I am feeling charitable as I write this, I will cut the government some slack by

(a) not including their regulatory administrative costs which, according to Jones and Graf, for fiscal year 97/98 totalled $5.2 billion for all levels of government, funded through taxation and/or debt, and

(b) not updating the 1997 figure of $3,425 to reflect the compliance cost in 2017, which would be noticeably higher.

Therefore, a very conservative estimate is:

Regulatory Compliance Cost: $3,425 annually, per person

If that makes you angry, try to relax. Pour yourself a drink, sit down, and take a deep breath, because it gets worse. A lot worse! Scotch would be a good idea. A double. Maybe a triple.

OPPORTUNITY  COST

Even though all firms, large and small, may pass their regulatory compliance costs onto consumers/workers through higher prices/lower wages, small firms operate at a disadvantage. Smaller firms have fewer employees and a smaller customer base, compared to larger firms. Therefore, the dispersal of compliance costs within small firms can produce larger wage reductions and/or larger price increases, as compared to larger firms. Thus, many small businesses are unable to compete, not because the entrepreneurs, managers, and workers are not good enough, but because they are compelled to obey authoritarian laws favouring firms with more political influence.

Opportunity cost represents lost opportunities for entrepreneurs to create wealth because of the high cost of regulatory compliance. This effectively prevents many of them from competing with their richer counterparts who (a) wrote the regulations (b) lobbied politicians to pass the regulations into law, (c) can absorb the compliance costs, and (d) benefit from higher prices for their products because of the coercive suppression of competition. Less competition = less wealth creation, which is reflected in fewer jobs and lower incomes for the 99%. However, it would be foolish to assume that all regulations favour large firms at the expense of smaller firms, though this is the major component. Large firms are sometimes hamstrung by regulations. Be careful what you wish for. When we grant governments the power to interfere in the marketplace, there will be no end to the interference, at the expense of overall economic growth. What is the cost?

In January, 2013, John Dawson (Dept. of Economics, Appalachian State University) and John Seater (Dept. of Economics, North Carolina State University) published a long term study [9] of the effects of U.S. Federal Regulations on economic growth. They say “our estimates indicate that annual output by 2005 is about 28 percent of what it would have been had regulation remained at its 1949 level.” Their sample period ends in 2005, but under the assumption that the ratio of 28 percent carries forward to 2011, they say that nominal GDP in 2011 would have been $53.9 trillion instead of $15.1 trillion, and “an annual loss of $38.8 trillion converts to about $277,100 per household and $129,300 per person.” (Dawson/Seater assigns 2.14 persons per household)

Let’s be sure we understand this – the Dawson/Seater study estimates the amount of economic output which has been prevented by all U.S. Federal Regulations implemented since 1949. This brings to mind the comment from Fraser Institute editor Kristin McCahon: “a lot of productive activity doesn’t happen in Canada because of regulations.”

Thus, just for the year 2011, each U.S. household was legally denied the opportunity to increase its income by an average of $277,100 ($129,300 per person). Imagine this happening each year, because that is the reality. For those who would disbelieve, Dawson and Seater simply point out that “Our estimates are consistent with previous estimates obtained from both aggregate and disaggregate data. In fact, our estimates are on the low side compared to many previous results.” Remember, this calculation captures data only at the federal level.

We can safely assume the opportunity cost of Canadian federal regulations would be similar to the U.S. figure. As Jones and Graf noted in their report “Canada and the United States have similar regulatory regimes.”[10]

Furthermore, for the year under consideration – 2011 – Canada and the U.S. had similar levels of economic freedom, which is directly related to government regulations. Consider “Economic Freedom of the World” (EFW), a report co-published by the Cato Institute, the Fraser Institute, and more than 70 think tanks around the world. The report tells us: “The foundations of economic freedom are personal choice, voluntary exchange, and open markets. . . . Without exchange and entrepreneurial activity coordinated through markets, modern living standards would be impossible. Economic Freedom of the World seeks to measure the consistency of the institutions and policies of various countries with voluntary exchange and the other dimensions of economic freedom.”

The EFW report assesses the level of economic freedom for more than one hundred countries. According to their 2013 annual report, which compiles data for 2011, on a scale of 1 to 10, Canada tied for 8th place with a score of 7.93. Hong Kong took first place with a score of 8.97, considerably higher than Canada. The U.S. scored 7.74, only slightly behind Canada – the difference is not significant. So, the U.S. and Canada were at comparable levels of economic freedom in 2011. The EFW report also provides data which supports the opportunity cost calculated by Dawson/Seater:

Nations in the top quartile of economic freedom had an average per-capita GDP of $36,446 in 2011, compared to $4,382 for nations in the bottom quartile in 2011 current international dollars.

In the top quartile, the average income of the poorest 10% was $10,556, compared to $932 in the bottom quartile in 2011 current international dollars.

Interestingly, the average income of the poorest 10% in the most economically free nations is more than twice the overall average income in the least free nations.

Canada tied for 8th place, which is pretty good compared to most other countries, but it is all relative. This does not mean Canada is a free country. It simply means Canada is ‘more free’ compared to most other countries. In other words, Hong Kong, which is in 1st place, is simply the best of the worst – the lesser of all the evils. No country came close to a perfect 10. When we consider the GDP and income gaps in the EFW report, the Dawson/Seater calculation should not shock us.

To illustrate how un-free Canada is, consider this: it is not unusual for a small business (less than ten employees) wishing to expand its operations within the physical boundaries of its own property, to spend five years and hundreds of thousands of dollars to comply with numerous government regulations. These are severe impediments to economic progress and job creation, yet politicians continue to assure us they are champions of economic-growth-oriented-policies.

We have reasonably established the comparability of U.S. and Canadian data. Thus, the Canadian cost is $129,300 per person, but this reflects opportunity cost only at the federal level.

According to Jones/Graf, total regulatory administrative costs in the provinces, territories, and municipalities ($1.9 billion) equaled 57% of federal costs ($3.3 billion). Let’s assume the opportunity cost of regulations in the lower levels of government are also 57% of the federal opportunity cost. Thus, $129,300 x .57 = $73, 701. Therefore, the opportunity cost in Canada for all levels of government is $203,001 (129,300 + 73,701).

Regulatory Opportunity Cost: $203,001 annually, per person

Feel like another drink?

COMPLIANCE  COST  +  OPPORTUNITY  COST

Now we add the Regulatory Compliance Cost: $3,425 to the Regulatory Opportunity Cost: $203,001. This equals $206,426. We will be conservative by rounding this off to two hundred thousand even.

Compliance and Opportunity Cost of Canadian Government Regulations: $200,000 annually, per person

This is a cause and effect relationship. When government regulation increases, economic freedom decreases, and when economic freedom decreases, so do per capita incomes. The EFW report rightfully tells us:

The cornerstones of economic freedom are (1) personal choice, (2) voluntary exchange coordinated by markets, (3) freedom to enter and compete in markets, and (4) protection of persons and their property from aggression by others. Economic freedom is present when individuals are permitted to choose for themselves and engage in voluntary transactions as long as they do not harm the person or property of others. Individuals have a right to their own time, talents, and resources, but they do not have a right to take things from others or demand that others provide things for them. The use of violence, theft, fraud, and physical invasions are not permissible in an economically free society, but otherwise, individuals are free to choose, trade, and cooperate with others, and compete as they see fit.

CONCLUSION

In the absence of government regulations, all Canadians would be much wealthier, with the exception of today’s top income earners – the top 1/10th of 1%. This small group would see their wealth decline because they are the prime recipients of the dishonest, immoral transfer of wealth intentionally facilitated through government regulations by complicit politicians and bureaucrats at all levels of government.

The EFW report notes that:

In an economically free society, the primary role of government is to protect individuals and their property from aggression by others.

We know the government is NOT fulfilling this role (see Part 8). Instead, perverse incentives prompt government officials to undertake actions to reduce economic freedom, actions which would be virtually impossible to execute outside the confines of authoritarian law.

In contrast, economic freedom as described in the EFW report was very prominent in Medieval Iceland, Ireland, and Anglo Saxon society (see Parts 2, 3, and 4), where Authoritarian Law was absent and Customary Law prevailed.

Go to Part 13

 

[1] Ludwig von Mises Human Action, A Treatise on Economics (Ludwig von Mises Institute, 1998) p 729

[2] Martin Gilens and Benjamin I. Page, Testing Theories of American Politics: Elites, Interest Groups, and Average Citizens, published in Perspectives on Politics (Volume 12, Issue 03, September 2014, pp 564-581) p 576

[3] The exception to this – though it has never occurred – would be a party elected on a platform of (1) No new laws, and (2) Repeal all laws which do not contemplate victims. This would be an exception, assuming the party kept its promises.

[4] Martin Gilens and Benjamin I. Page, Testing Theories of American Politics: Elites, Interest Groups, and Average Citizens, published in Perspectives on Politics (Volume 12, Issue 03, September 2014, pp 564-581) pp 565, 567, 572, 576

[5] Expenditure Analysis of Criminal Justice in Canada, Office of the Parliamentary Budget Officer, Ottawa, Canada, March 20, 2013

[6] Laura Jones and Stephen Graf Canada’s Regulatory Burden – How Many Regulations? At What Cost? (Fraser Institute, August, 2001) p 6

[7] Ibid., p 2

[8] Ibid., pp 9, 24

[9] John W. Dawson & John J. Seater Federal Regulation and Aggregate Economic Growth (January, 2013)

[10] Laura Jones and Stephen Graf Canada’s Regulatory Burden – How Many Regulations? At What Cost? (Fraser Institute, August, 2001) p 27

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