Steve Horwitz has an outstanding post up at Bleeding Heart Libertarians today:
The short answer, which I will assert here and defend below, is that whatever the intent behind government regulation of markets, it almost always ends up working in the interest of the rich and powerful and does little to protect the interest of those with modest means and little access to power. If a commitment to social justice demands that we care first and foremost about the least well off among us, supporting government regulation may well violate that commitment.
Simply put: rich and powerful interests are best positioned to make their preferences known to government regulators (by hiring lobbyists and &c.) and are best able to reward “friendly” and punish “unfriendly” regulations (with campaign contributions, endorsements, and &c.). See, for example, Mattel and CPSIA.
I was chatting with a friend of mine about the possibility of a Canadian housing bubble collapse, and the “deregulation” of American investment banks came up. (This friend used to work at Bear Sterns before deciding that he’d rather do a Ph.D. in computer graphics, so he has some practical experience with the sector.) The way we saw it, the final form of the Gramm-Leach-Bliley Act wasn’t across-the-board deregulation that made the financial market significantly freer, but rather a carefully-chosen set of changes intended to benefit the big established players and lock out potential competitors. But of course nearly everyone who’s interested in telling a story about GLB wants to paint it as ideologically-correct free-market activism, whether they’re bragging about it (Republicans) or castigating it (Democrats).
For me, as an economist, the argument against a great deal of regulation is precisely that it harms the least well off it is trying to help and provides unwarranted privileges for those who need them least. There is plenty of historical evidence of the role of big business in lobbying for and helping to write a whole variety of regulations. As I’ve argued elsewhere, this is a feature of the mixed economy, not a bug. My First Law of Political Economy is “No one hates capitalism more than capitalists,” and the mixed economy is not accidentally rigged to benefit the powerful. That is why it’s there in the first place.
(The “mixed economy” here is what I’d call corporatism: a market economy regulated by a powerful central state.)
This is a pretty straightforward public choice argument, and it will not surprise you in the slightest to discover that the dissenting commenters at BHL are utterly uninterested in addressing it. It’s much more fun to make vague handwavey ad hominem attacks on Mises and Hayek, after all!