All Christian ethics can be summed up in one command: “Love your neighbor as yourself” (Matthew 22:39). And within that command is the provision, as the Apostle Paul said, “Love does no harm to a neighbor” (Romans 13:10). This is why the Christian approach to public policy should begin with a simple standard: Because we love our neighbors, we should not support policies that we suspect will cause them harm.
Unfortunately, while the rule is simple to state it can be difficult to apply. We don’t always know or agree on what policies will cause harm. Still, any type of policy that is presumed or known to cause harm should be carefully scrutinized. A prime example is government regulations.
As economist Scott Sumner says, “One of the most basic ideas in economics is that the vast majority of regulations are harmful.”* He gives the example of a regulation on banks than forbids them from charging fees for the use of ATMs. This regulation appears to be “pro-consumer,” but as Sumner explains, the actual effect is likely to harm bank customers:
Banks will see this as a cost increase, and pass the cost on to consumers in other ways. Can I be sure this will occur? No, but it’s very likely. Suppose I told you that Congress passed a 10-cent increase in the gas tax. What would you expect to happen to gas prices at the pump? Most people would expect a 10-cent increase. In fact, the oil industry is perhaps the industry where taxes are least likely to be passed on to consumers. That’s because the supply of oil is less elastic that the supply of almost any other good, including banking services. So if you think gas taxes are passed on to consumers, then you should be even more certain that I’m right about the elimination of bank fees being passed on to consumers in other ways, such as fees on deposits, or lower interest rates on deposits.
OK, but so far this is a wash. If consumers pay less in one place and more in others, does the regulation actually hurt consumers? Yes it does, because it also hurts bank efficiency. Eliminating ATM fees will reduce the profit maximizing number of ATMs, which will make banks less efficient. Since tellers cost more than ATMs, the cost increase passed on to consumers will be larger than the saving from ATMs.
Sumner argues that there are only a few types of government regulations that are justified, “Primarily environmental mandates (or taxes), and perhaps a few anti-trust rules.”
So does that mean there should be no regulation of markets?
No. In fact, there can be no such thing as an unregulated market. The question is who should do the regulating, legislators or consumers. As Howard Baetjer Jr. explains,
A big economic problem the world faces is semantic. That is, “regulation” has come to mean “government regulation.” We don’t seem to be aware of the alternative: regulation by market forces. That’s a problem because it leads us to accept so much government meddling that we would be better off without.
We want the aims of regulation — regularity and predictability in markets, decent quality and reasonable prices for the goods and services we buy — and thinking that government regulation is the only way to get those, we accept a vast array of unnecessary, wrongheaded, and usually counterproductive mandates and restrictions.
But government regulation is not the only kind of regulation.
To regulate is to make regular and orderly, to hold to a standard, to control according to rule, as a thermostat regulates the temperature in a building. Market forces do this continually as competing businesses offer what they hope will be a good value, then customers choose among the various offerings, then the competing businesses react to customers’ choices. That process is the market’s regulator.
Baetjer gives some examples of how the market provides less harmful forms of regulation.
Not everyone will agree, of course, with this assumption that markets do a better job of regulating than do governments. But I use this as an example of what many of us believe should be obvious.
Part of the reason it is not obvious is because many of us Christian advocates of market freedom fail to be persuasive. The moral case for free markets has frequently been made so poorly and stated so incompetently that it’s not surprising that people fail to understand our perspective.
Because of our inability to make a persuasive case for free markets, many well-meaning people assume we must simply have bad motives. The reality is that most Christians who champion markets do so for a noble reason: we truly believe the alternatives harm our neighbors.
You don’t necessarily have to agree. But if you want to understand why we think the way we do, you don’t have to read Hayek or Mises. All you need to know is that we’re doing what we think is best to follow Romans 13:10.
Note: I don’t know whether Scott Sumner is a Christian or not. I use him not as an example of someone who agrees with Christian ethics but merely as someone who understands the harm of regulations.