Watching the watchers

Government ‘regulation' is no magic bullet.

By Steven Miller
  • Thursday, April 10, 2008

Ever notice how, whenever Nevada government lays yet another egg, the "solution" that politicians and bureaucrats prescribe always turns out to be yet more government?

As they – and many media handmaidens – regularly frame the issue, the failure of government agencies essentially only means that you and other taxpayers simply aren't paying enough.

The presumption here – and it is very presumptive – is that only if we fund many more government employees, and arm them with ever-more-intrusive powers, can we expect the continuing pratfalls of state and local government to ever come to an end.

It's as though these savants spent the last generation in some parallel universe, where the failures of Soviet and every other form of socialism simply never happened.

Here in Nevada, this You-Aren't-Paying-Enough ruse has been successfully deployed for decades. It is, of course, a staple of the public education establishment's huge propaganda apparatus.

We've also seen it used regularly following each major public failure of government-run "child protective services." Whenever a new heartbreaking case of agency dereliction appears in the news, the child welfare bureaucrats always say it's because they have too few employees.

In actuality, as experts in the field regularly testify, child welfare systems have insatiable appetites for dollars and can absorb almost any amount of money – while doing virtually nothing to improve the quality and effectiveness of services to abused and neglected children. As in public education, the most basic problems are systemic issues that the bureaucracies refuse to address, not the fact that resources are limited. Scarcity of resources, after all, is a basic condition of human existence.

Today, in the aftermath of Southern Nevada's hepatitis C and HIV scare, the not-enough-money refrain is again being heard. Unfortunately, here too it is largely self-protective noise, evading the fundamental problems of the incentive structures that come with government-dominated medicine and tend to block needed innovations.

Ultimately, the regulatory approach itself – Nevada's medical-regulation system included – is an inadequate and makeshift solution. Not only do the state's insurance-coverage mandates and taxes on insurance premiums increase the cost of health insurance and price many people out of the insurance market, but significant evidence suggests state-enforced regulations developed by health professionals too often covertly serve the profession's interest, rather than patients'.

Similarly, conventional wisdom today presumes that the way to minimize abuses or infractions by medical professionals is for the government to hire inspectors and bureaucrats who go around and watch doctors and nurses. In other words, some level of officious bureaucracy and cost to taxpayers is presumed to be the necessary trade-off for securing safer medical care. If the current level of bureaucracy and spending then fails, this mindset presumes the only solution is to increase the number of inspecting bureaucrats even more.

The weakness of this approach shows up when we learn how frequently inspector-bureaucrats – such as Clark County building inspectors – don't go around and do their inspecting. Yes, the health regulators say that they just have too many doctors to watch. But is that really true? Research suggests that tighter controls do not improve the quality of service. Perhaps it is simply that the essential nature of government regulation is, once again, revealing itself?

Government regulation, even if ultimately required, is an inherently inadequate solution to the problems of modern society. One reason is that – contrary to public impressions – most government regulation of industries and professions actually was sought by those same industries and professions.

The classic case was the first: the Interstate Commerce Commission, which, as historians have shown, was sought by the 19th Century's government-sponsored and government-subsidized railroads. This would-be cartel or "trust," repeatedly foiled in its efforts to collude in price-fixing, solicited help from the U.S. Congress and received the Interstate Commerce Commission. Operating through the ICC, the politically connected railroads were now able to make offering lower prices to customers a regulatory "violation."

The restrictive licensing by states of medical professionals has been similar. Perpetrated through the political activities of the American Medical Association and county medical societies, it operates to raise the incomes of existing practitioners by denying licenses to practice medicine to graduates of non-AMA-approved medical schools.

This process – in which special interests form and/or control government regulatory bodies in order to disadvantage competitors – is called "regulatory capture" and has been the subject of much academic study, most notably by Nobel laureate economist George Stigler.

Another reason for regulation's inadequacy is that, as part of government, regulatory bodies are inherently political. Researchers have amply documented that regulators usually act self-protectively, with a wet finger in the wind, adjusting quietly to the desires of powerful politicians and interest groups – even though this often leads to the very crises regulators are supposed to prevent.

Since there is no magic bullet against the vicissitudes of modern life, as the political class pretends, Nevada would do well to begin looking elsewhere for new and creative solutions.

Transparency, deregulation and competitive delivery of medical services is the frontier to explore.

Steven Miller is vice president for policy at the Nevada Policy Research Institute.

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