Frank faults libertarians for “denouncing [taxes on harmful activities] as ‘social engineering’ — attempts to ‘control our behavior, steer our choices, and change the way we live our lives.’ Gasoline taxes aimed at discouraging dependence on foreign oil, for example, invariably elicit this accusation.” An argument phrased like that elicits from Frank a ready response. “But it’s a vacuous complaint, because virtually every law and regulation constitutes social engineering. Laws against homicide and theft? … they’re social engineering. So are noise ordinances, speed limits, even stop signs and traffic lights.”

So then, there are two kinds of taxes. One kind is meant to raise revenue for the government; that people change their behavior in response to them causes such taxes to be non-market-neutral, produce deadweight loss, and is an undesirable side effect. The other kind is the exact opposite: it is meant to alter behavior; any revenues indicate only that the offending behavior has in some part persisted, and it is this that’s an undesirable side effect. Some taxes then are meant to be paid; others, entirely avoided.

It is true that all laws can be construed very widely as social engineering. But notice the difference. A law ordering the government to punish theft (thereby deterring it) is a general rule. The government laws permeate society as a whole ordering the entire people. A law is a general incentive that, when enforced, allows the consumers within the free market thereby secured to present to the businessmen the particular incentives by their buying and abstention from buying which products to output, in what quantities, and at what prices.

But consider the following passage from my book:

For an example of vicious thinking regarding full employment, I direct your attention to H.R. 2847, “Hiring Incentives to Restore Employment (HIRE) Act” passed by the US Congress on March 18, 2010. Among other things, the bill establishes a payroll tax holiday for employers who hire “qualifying workers” — individuals who have not worked more than 40 hours during the last 60 days. It is a bill like any other in the sense that the government considers the people to be trained monkeys who dance to the regulators’ both clumsy and highly intricate behavior modification tune of financial incentives and disincentives. It legislates a tax cut, in that the employers are freed from the necessity to pay their portion of Social Security for a period of time for those people they hire who have not worked for a while. … (I, 7)

You can read the reasoning following this passage in the book. The point is, as soon as the government starts building regulatory mazes for entrepreneurs to navigate, it redirects production away from the course that is most agreeable to the consumers. It substitutes government sovereignty for consumer sovereignty. In general, such conduct is uneconomic, deviating from the market’s tendency to create the greatest good for the greatest number.

It is still open to Frank to argue that regulations negate some subtle harms to third parties, negative externalities. This is fine, although I think the amount of attention that economists pay to these “market failures” is grossly out of whack with their real-world significance. Again, Frank can say that training monkeys to dance creates some group goods. But he cannot deny that consumers privately suffer.

It is true that noise ordinances can be used to control externalities, but they do so locally. In stark contrast, in proposing his remedies, Frank imagines himself king of the world.

Speed limits, etc. exist, because the government owns the roads. What is its property, it needs to manage. The people have no direct say in how the government manages the roads. Even if highways are privatized, rules for their use would exist and might even be stricter than the present government ones. So, this is no counter-argument.

Presumably, however, the government does not own businesses. Manipulating and micromanaging them seems like slouching toward socialism of the “German pattern,” as Mises puts it, whereby property is nominally private, but actual control of it belongs to the state. In such a situation, business owners are mere agents of the state. I suppose the difference is that American regulations mostly say, “If you do this, you will be punished,” while the German planners said, “If you don’t do this, you will be punished.” This is a trenchant objection, even if I do say so myself. But as the amounts of regulations pile up, and they do, the distinctions between the two systems become increasingly less vivid.

I hope Frank is not in favor of that.


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