There Are Sometimes Problems with Partial Deregulation

Published September 17, 2013

Markets always work better the freer they are.  Free from all but the barest necessity laws and regulations, and the least taxes possible – up to and including none at all.  

Government action distorts and then warps the private sector.  It provides incentives other than – less than – those that best serve the participants.  
Any government advantage given to one thing is a disadvantage to others.  Since government is terrible at just about everything, it most often chooses to advantage dumb things at the expense of smart ones.  Or it plays Crony Socialism favorites – helping (campaign contributing) friends and punishing enemies.  Solyndra, anyone?  The IRS?  
As a result of all of this inanity, private people make all sorts of decisions and deals not to best meet their needs – but to serve the interests chosen for them by government.  Or they use the government as an anti-free market weapon against competitors – rather than working to improve what they’re doing.  
The bigger the government, the worse the private sector is warped. Our federal government is spending nearly $4 trillion a year, and has millions of pages of laws and regulations – so you see the size of the problem.
And the heinousness is not just felt domestically.  As the world has gotten smaller, our markets for nearly all things have gotten global.  And our terrible government policy has messed that up too.
“Trade Wars” actually aren’t about trade – they are about government trade policy.  If peoples are trading freely, there isn’t a “War” – there’s commerce.  The “Wars” only happen when governments get involved – placing tariffs, regulations and subsidies in the way of the flow.
It becomes a regulatory arms race.  A government imposes another subsidy or tax.  So several others in response impose new subsidies and taxes of their own.  Lather, rinse, repeat.  
Government farm policy is an excellent example of this terrible mess.  We have all over the world decades worth of Trade War impediments.  Thus, sadly, partial deregulation is now no longer an option. 
Why not?  Let’s look at sugar policy:
(T)he European Union (EU), which supplied as much as 20 percent of global (sugar) exports in the 1990s, shifted from a net exporter to a net importer following sugar policy reforms in 2005.
Something similar is happening here.  Into the midst of this global omni-protectionist nightmare, we in 1994 dropped the North America Free Trade Agreement (NAFTA).  Which greatly opened up our trade with Canada – and Mexico.
Mexico is also a large sugar producer.  And the Mexican government is a huge part of the process.  The Federales currently own outright 20% of all Mexican production.  And subsidize the living daylights out of the rest.  
To further manipulate the market, Mexico uses NAFTA to serve for the rest of the world as an open sugar channel to America.  They export to us per year nearly 8 million tons – yet import more than 1.2 million tons for domestic use.  
In a truly free market, they would send us 1.2 million tons less – and keep it for themselves so as to not need imports.  But in the patchwork quilt that is the global Trade War subsidy scheme, Mexico has manipulated their sugar price to be about 10% higher than ours.  So they are playing the margins and reaping the windfall.
Yet for some reason we can’t export to Mexico at anywhere near similar levels – to avail ourselves of their higher price.  Hmmm….
This is one of those times where partial deregulation is actually a problem.  The EU tried it, and lost huge.  We passed NAFTA, and in the greater sugar global regulatory mess it has mainly served to help those who stuck more squarely to their Trade War guns.
We have a worldwide governments-induced trade impediment problem.  We need much more than mere piecemeal, a la carte attempts at solutions.