How Government Protects Businesses from Competition

Over at Carpe Diem, Mark Perry quotes Milton Friedman on government licenses for medicine.  Milton makes good points (the case is much broader in his book than the snipped quoted), but I want to talk on another issue regarding licenses: they’re barriers to entry.

Licenses are sold to the public as consumer protection measures.  In theory, they prevent people from bad doctors, hairdressers, casket manufacturers, taxi drivers, etc.  But licenses also have a flip side where they can actually result in the entrenchment of the very bad people they are supposed to protect from.

Markets work most efficiently when there is competition.  Competition forces firms to check their processes to ensure their methods are the most efficient and that they can best induce buyers to purchase from them.  However, when there are barriers to entry, it effectively reduces competition, which in turn reduces the need for a firm to operate efficiently.  There will always be some kind of barrier, but government licenses act as an artificial barrier.  By requiring would-be operators to pass certain classes (funded by the would-be operator, of course), spend time filling out applications, and/or other onerous regulations, the government is effectively reducing competition faced by the current operators.  In short, government protects the entrenched (which may or may not be operating inefficiently or poorly) from any kind of competition that would force them to change.

In essence, regulation acts to help create monopolies (which the government then deems itself competent enough to dismantle through anti-trust legislation).  Given the thought process outlined above, I’d argue that government could greatly reduce/eliminate the need for anti-trust if it simply reduced unneeded regulation.

34 thoughts on “How Government Protects Businesses from Competition

  1. Yep. Excessive government often used the protection fable to pretend they are worried about consumers when, in reality, government only cares about limiting competition to help political cronies.

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    • When you were a regulator in what you like to call “government service” did you “only care about limiting competition to help political cronies’?

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      • I did not write the regulations or issue any licenses. That is where competition is limited.

        I must have really hurt your feelings in our previous discussions. It was not my fault in you looked foolish in our previous discussions. You did that to yourself.

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        • Banks charters are granted by the government. Bank regulators regularly examine banks to determine whether or not those banks will be permitted to continue in business. This is what bank regulators do whether or not they personally “write” the regulations or personally “issue” the bank charters.

          This system of regulation definitely produces high barriers to entry and reduces competition and you were part of it before you went to work for the industry you used to regulate.

          Thank you for your concern about my feelings. I’ll be OK.

          I see that you are now posting as simply Greg after shedding previous identities as Greg W and Greg Webb. With your comment history and job history it’s easy to see why you would want a new start.

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          • Lol! It is hilarious to see what a dry goods salesman in a small town feels about the business world he knows nothing about. Keep making stuff up, Greg Government. You are always good for a laugh.

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          • “Bank regulators regularly examine banks to determine whether or not those banks will be permitted to continue in business.”

            No. Bank regulators (called “examiners,” not “regulators”) conduct examinations to report to senior management of the agency which employs them on the condition of the bank being examined. The agency, as a courtesy to the bank, sends a copy of the Report of Examination to the bank’s board of directors. The examiners do not determine if “those banks will be permitted to continue in business.” The bank’s capital level determines if it will remain in business.

            Duh.

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          • The fact that “examiner” is the industry jargon for regulator is no more relevant to the point here than the fact that a bank “charter” is the industry jargon for a license to engage in banking.

            A bank’s capital ratio is the most important, but far from the only, factor that determines whether the government will permit it to continue to engage in banking. Asset quality, management capability, earnings, liquidity, sensitivity to market risk and compliance with the Bank Secrecy Act are also important factors in that decision.

            It’s good to know that those in what you like to call “government service” consider it a “courtesy to the bank” that the bank gets a copy of the report that will be used to decide whether or not it gets to stay in business.

            There are some very good reasons that banks are regulated in this way but this regulation is certainly a barrier to entry that reduces competition which was the topic of Jon’s original post. You can blame it all on “senior management” if you like but you were very much a part of this regulatory apparatus that limits competition no matter how many weasel words you use to imply otherwise.

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          • 1. No. “Examiner” and “charter” are the words used by the bank examiners in their Reports of Examination.

            2. No. A bank can fail only if its capital ratio drops to 2% or less.

            3. Yep. The government’s reports are for its own use, not for the bank’s. That is why Reports of Examination are confidential.

            4. Senior management runs the agency so, yes, they make the decisions.

            It is hilarious to watch you make stuff up as you go.

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          • >—“Senior management runs the agency so, yes, they make the decisions.”

            Yeah, we get it. You were just a pawn merely taking orders from above in the larger machinery of oppressive government regulation.

            What you did was “government service.”

            What your bosses did with your work was to “help political cronies.”

            Thank you for your “service.”

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          • “You were just a pawn . . . ”

            Yep. Employees often set policies at the places they work. I am sure the checkout clerks at your dry good store told you want you were going to sell. . .and for how much. Lol!

            “. . . ‘help political cronies.’”

            Yep. When Citicorp calls the Chairman of the FDIC, he answers the phone. And, you know, he just doesn’t do that for every banker.

            Lol! Reagan sure had you pegged: “[you] know so much that just isn’t so.”

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          • What you did was “government service.”

            What your bosses did with your work was to “help political cronies.”

            Thank you for your “service.”

            Assuming this isn’t some subtle sarcasm that I am missing, I’ve gotta say it’s good to see you expressing such a low opinion of government.

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          • Ron,

            You didn’t miss subtle sarcasm. You missed extreme sarcasm.

            You don’t need that high an opinion of government to have an even lower opinion of some ideas you see on the internet.

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          • >—-“No. Bank regulators (called “examiners,” not “regulators”) conduct examinations to report to senior management of the agency which employs them on the condition of the bank being examined.
            (by the commenter known most recently as “Greg”)

            >—-“1. No. “Examiner” and “charter” are the words used by the bank examiners in their Reports of Examination.”
            (also by the commenter known most recently as “Greg”)

            >—“Mr. Webb was a commissioned National Bank Examiner with the Office of the Comptroller of the Currency in its Austin, Texas office and later in Washington, D.C. His government service involved identifying and REGULATING (emphasis added) troubled national banks; enforcing administrative enforcement actions; evaluating complex corporate financial statements,”
            (from the internet marketing material for his firm by Greg Webb aka Greg W aka Greg.

            Note how the preferred terms and attitude toward government regulators change with which internet identity is chosen. Marketing to cronies is so different from ripping them anonymously.

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          • OK then, for anyone thinking that the words “National Bank Examiner” change these meanings in any way here is the same quote with even more context from YOUR OWN marketing materials:

            >—“Mr. Webb is the former Managing Director of, and was an Attorney at Law for 18 years with, Gerrish & McCreary PC, a Memphis, Tennessee based law and bank consulting firm. Prior to becoming an attorney, Mr. Webb was a commissioned National Bank Examiner with the Office of the Comptroller of the Currency in its Austin, Texas office and later in Washington, D.C. His government service involved identifying and regulating troubled national banks; enforcing administrative enforcement actions; evaluating complex corporate financial statements, appraisals of commercial real estate properties, and corporate valuations of non-publicly traded commercial business entities; and advising bank boards of directors and executive management regarding proper risk management practices.”

            You still advertise the fact that you were “REGULATING (emphasis added) troubled national banks.” Troubled banks are “troubled” by the fact that they are in danger of being taken over by the regulators.

            When you claimed in your opening comment that “government only cares about limiting competition to help political cronies” you didn’t distinguish between pawns and bosses. But of course at that point, you weren’t expecting people to realize that you were very much a part of the government machinery you now find so oppressive before you decided to market yourself to people you now describe as cronies.

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          • “. . . context . . . ”

            Key words: “National Bank Examiner.” Duh.

            “. . . in danger of being taken over by the regulators”

            . . . because their capital was nearing 2%. Duh.

            “. . . you didn’t distinguish between pawns and bosses . . .”

            Because every knows that senior management makes the rules and employees follow them. Duh.

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          • Are you aware that you have a bizarre Tourette’s like habit of robotically repeating the same comments over and over? It gets funnier each time you do it.

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          • You are like dealing with someone with Alzheimer’s disease. You keep forgetting to use critical thinking skills and revert back to making stuff up.

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        • Mat,

          I don’t know who Greg Green is but it’s not like we don’t already have enough Gregs here.

          Also, I can’t help noticing that you yourself are commenting on comments, not on the post. Which is OK with me. Do it or don’t. It’s entirely appropriate that, on a libertarian blog, everyone makes their own decisions about what to comment on.

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          • It’s entirely appropriate that, on a libertarian blog, everyone makes their own decisions about what to comment on.

            No. Libertarianism does not mean that you can act poorly on blogs. I was merely correcting your rudeness. You should comment on the post and quit acting like a child.

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          • Mat

            Where did you learn that the best way to join a conversation on a blog is to tell people – especially people you don’t even know – what they “should” or shouldn’t do and start insulting them? If you are addressing the subject of the post, that’s one thing, but telling others what they should or shouldn’t do or how they should behave is kind of in the domain of the blog owner, not you, don’t you think?

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