Government Intervention in the Private Sector

In the realm where economics and governance intersect, two primary types of entrepreneurs emerge: "market entrepreneurs" and "political entrepreneurs." A market entrepreneur is an individual who identifies opportunities within the free market and diligently strives to deliver superior products or services at competitive prices. The demand for these offerings serves as a barometer, indicating whether consumer needs and desires are being met.

Conversely, there exists a human inclination to secure a dominant market position without necessarily competing for superior products or lower prices. This inclination often propels the emergence of "political entrepreneurs." A political entrepreneur actively seeks government intervention, primarily through policies and regulations, to gain a competitive advantage in their market. A relevant example can be found in the energy industry, where numerous government incentives are given to provide renewable energy sources like wind, solar, and hydroelectric power. These financial subsidies render investments in renewable energy projects more viable, giving an advantage over traditional fossil fuel-based energy producers. While the pursuit of alternative energy sources is commendable, employing government resources at the taxpayers' expense to gain a competitive edge raises significant concerns.

The General Welfare Debate

To appreciate this concern, an understanding of the purpose for which government was established is needed. In the preamble to the United States Constitution, one of its stated objectives is to "promote the general welfare." The phrase 'general welfare' also appears in Article I, Section 8, Clause 1, granting Congress the authority to “lay and collect Taxes, Duties, Imposts and Excises, to pay the Debts and provide for the common Defense and general Welfare of the United States….”

At the time of the Constitution's adoption, 'general welfare' implied the well-being of the entire nation. It was not long after that this definition began to be distorted. Today this phrase, is often associated with government assistance to the poor, encompassing various aspects of public and private life—most of which extend beyond the powers delegated to the national government in the U.S. Constitution.

To illustrate this further, consider the perspective of James Madison when dealing with similar legislation. In February 1792, the Cod Fishery Bill was introduced to stimulate and support the cod fisheries industry in the United States, particularly in New England, by offering financial incentives and support to industry stakeholders. James Madison strongly warned the House not to view the 'general welfare' clause as a broad, all-encompassing power but as a clear statement of limited authority meant to benefit the whole country. Madison cautioned that if this clause were erroneously given an expansive interpretation, it would result in a government that exceeded the bounds set by the Constitution itself, thereby veering into territory not authorized by its foundational principles. He argued that:

“…if the clause in question really authorizes Congress to do whatever they think fit, provided it be for the general welfare, of which they are to judge, and money can be applied to it, Congress must have power to create and support a judiciary establishment, with a jurisdiction extending to all cases favorable, in their opinion, to the general welfare, in the same manner as they have power to pass laws, and apply money providing in any other way for the general welfare….

“If Congress can employ money indefinitely to the general welfare, and are the sole and supreme judges of the general welfare, they may take the care of religion into their Own hands; they may appoint teachers in every state, county, and parish, and pay them out of their public treasury; they may take into their own hands the education of children, establishing in like manner schools throughout the Union; they may assume the provision for the poor; they may undertake the regulation of all roads other than post-roads; in short, everything, from the highest object of state legislation down to the most minute object of police, would be thrown under the power of Congress; for every object I have mentioned would admit of the application of money, and might be called, if Congress pleased, provisions for the general welfare.” (James Madison, On The Cod Fishery Bill, Granting Bounties, 1792)

Hindsight validates Madison's apprehensions. Government subsidies have become so commonplace that their consequences are often overlooked. The pertinent question remains: was Madison's rationale sound?

Legal Plunder

In his book "The Law," Frederic Bastiat coined the term ‘legal plunder’ to describe a form of government-sanctioned theft or exploitation. Bastiat argued that when the law is perverted to serve the interests of specific groups or individuals, often through government policies, it becomes a tool for legalizing the unjust acquisition of wealth or property at the expense of others. Essentially, legal plunder occurs when the law is used to redistribute wealth or resources from some citizens to others through mechanisms like subsidies, tariffs, or regulations that favor certain industries or individuals. Bastiat's key point was that such actions, while technically ‘legal’, are morally and ethically wrong because they violate the principles of justice, equality, and individual rights. He believed that government should exist to protect these rights rather than to enable legal plunder.

As this practice has become commonplace in our society, understanding its broader societal implications can be challenging. So, let’s take a step back and look at it from its most fundamental level. We know that the United States Constitution is a creation of the people through their state elected representatives. As such, it would be logical to conclude that the people created it to serve their needs. We can further conclude that the people we elect are representing us through our collective consent and with certain authority that we have delegated to them for finite terms.

With this foundational understanding of government authority, let’s now shift our attention to the individual perspective. What powers can an individual delegate to their representatives? Can a person delegate authority they do not possess? These rhetorical questions emphasize a vital concept. Consider a hypothetical scenario: Do I have the authority to deny you the opportunity to become a taxi driver, assuming that is your ambition? Hopefully you answered NO, I don’t have that right. Consequently, can I delegate authority to my representative to enact a law restricting you from becoming a taxi driver? Once more, the answer should be NO.

Examples of Legal Plunder

Now, let's transition from hypotheticals to real-world scenarios. In New York City, becoming a taxi driver typically requires obtaining a "taxi medallion" or "medallion license." These medallions are essentially permits issued by the city's Taxi and Limousine Commission (TLC) that allow individuals or businesses to operate taxicabs legally within the city. The process to obtain a medallion includes meeting various requirements, such as background checks, drug tests, and completing driver education courses. While it can be argued as reasonable to require competency tests, the city went further by limiting the number of medallions well below the demand for taxi services. This scarcity artificially drove up the value of existing medallions, making them extremely expensive. For years, taxi medallions in New York City were considered valuable assets, often valued at hundreds of thousands of dollars each.

In this scenario, those who hold the taxi licenses are the beneficiaries of legal plunder because they are granted a special privilege by the government, allowing them to profit at the expense of potential competitors and, ultimately, consumers who may bear the brunt of higher fares. This is one of many examples where government intervention has created an unfair playing field. Ironically, government in the United States was created for the exact opposite intent – to secure equality under the law.

The Auto Industry and Electric Vehicles

Another example of government intervention pertains to the auto industry, particularly concerning electric vehicles (EVs). Legal plunder assumes various forms, including subsidies, regulations, and incentives to encourage EV adoption. A few specific examples of government intervention are:

• Federal tax credits, such as the Electric Vehicle Tax Credit (EVTC), offered to encourage consumers to purchase electric vehicles. Qualified buyers are offered tax credits of up to $7,500 if they purchase a plug-in electric car. Question: Can I, as an individual, require you, as an individual, to pay for part of my new vehicle? If not, can I delegate that authority to government?
• Government grants are given to qualifying entities to offset the cost of installing charging stations in public locations, along highways, and in private facilities. Question: Can I, as an individual, require you, as an individual, to pay for part of my new charging station? If not, can I delegate that authority to government?
• Research and Development Grants are often given to qualifying research institutions and automakers for electric vehicle research and development. These funds support advancements in battery technology, energy efficiency, and electric drivetrains. Question: Can I, as a car manufacturer, require you, as an individual, to pay for part of my research and development fees? If not, can I delegate that authority to government?

While the objectives of reducing greenhouse gas emissions and promoting cleaner energy are worthy goals, questions linger regarding the efficiency and moral justification of this approach. Despite its potential benefits, does government involvement in the private sector inadvertently produce adverse side effects?

Results of Government Interference

To answer this question, let’s first look at the taxi example. The limitation on medallions, while initially aimed at maintaining some degree of control and quality in the taxi industry, led to issues such as high prices for medallions, limited opportunities for new entrants, and increased costs for consumers. Ultimately, the medallion system and its associated problems led to widespread criticism and calls for reform. In recent years, entrepreneurs in the private sector introduced ride-sharing services like Uber and Lyft that disrupted this government regulated taxi medallion system, totally redefining the taxi model.

Likewise, government interference in the auto industry may prove to be just as futile. As we have previously discussed, government interference with EV’s is highly charged by environmental and energy policy goals, including reducing greenhouse gas emissions and transitioning to cleaner energy sources. While the goals themselves may be good, the question remains, is government intervention the best option for achieving them? While these interventions can accelerate the adoption of electric vehicles and promote cleaner energy, the side effects may not be worth the price. Let’s look at a few potential problems.

• Market Distortions: Subsidies and incentives for electric vehicles may distort the market by favoring one technology over others, potentially hampering innovation and resource allocation efficiency in the auto industry.
• Consumer Costs: Government incentives for EVs, often funded through taxpayer dollars, may impose indirect costs on individuals who do not benefit from these incentives.
• Market Competition: Excessive government intervention can stifle competition, favoring established automakers with the resources to comply with regulations and access government subsidies, potentially hindering new entrants and startups from competing in the EV market.
• Inequity: Government incentives for EVs may predominantly benefit wealthier individuals, exacerbating income inequality and potentially leaving lower-income individuals with fewer advantages.
• Subsidy Costs: Government subsidies for EVs can be costly and divert resources away from other pressing public priorities.
• Market Dependency: Subsidies and incentives can create market dependency, with consumers and manufacturers relying on government support to sustain the industry. If these incentives are reduced or eliminated, it can disrupt the market and lead to economic instability.

While electric vehicles represent a promising technological advancement, should we allow government intervention to continue in this area? Policies that restrict traditional energy sources like oil drilling and fracking, and enforced in the name of climate control, are primary contributors to surging gas prices. This not only affects consumers but also hints at a deliberate strategy to expedite the transition to electric vehicles. These interventions disrupt the natural balance of market forces and artificially hasten transitions that should unfold at their own pace. Subsidies aimed at making electric cars accessible to all may appear well-intentioned but are, in reality, legalized plunder.

Conclusion

In numerous instances, government interference in the private sector has yielded numerous counterproductive outcomes. The distinction between market entrepreneurs and political entrepreneurs underscores the ramifications of government subsidies and interventions. Well-intentioned as they may be, these actions can inadvertently distort markets, infringe upon the principles of limited government, and culminate in what can be termed "legal plunder." Instead of coercing rapid transformations, fostering an environment where free enterprise can flourish offers a more organic and sustainable path to innovation and prosperity. Striking a balance that upholds the principles of individual liberty, economic freedom, and constitutional governance is imperative for authentic societal progress. The ultimate aim of government should be the equitable application of laws to benefit all individuals uniformly, epitomizing equality under the law.