# When has government intervention harmed a service or economic sector? **URL:** \ **Category:** Great Debates\ **Created:** [September 4, 2009, 10:53am UTC](https://boards.straightdope.com/t/when-has-government-intervention-harmed-a-service-or-economic-sector/508844 "2009-09-04T10:53:18Z")\ **Posts on this page:** 20\ **Page:** 2
**Author:** ![Kent\_Clark](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/kent_clark/32/105_2.png) [@Kent\_Clark](https://boards.straightdope.com/u/Kent_Clark)\ **Post date:** [September 5, 2009, 1:47am UTC](https://boards.straightdope.com/t/when-has-government-intervention-harmed-a-service-or-economic-sector/508844/21 "2009-09-05T01:47:56Z")
> [@foolsguinea](#): > > I wait with bated breath.Is that “natural dynamic” the growth of private market dominance? Does good government require a submission to that natural dynamic any more than good architecture requires submission to the natural dynamic of rocks falling? 😕 I didn’t (and don’t) claim that antitrust/antimonopoly regulations are a bad thing. Your OP didn’t ask about business ethics, only efficiency. ---
**Author:** ![gonzomax](https://avatars.discourse-cdn.com/v4/letter/g/e8c25b/32.png) [@gonzomax](https://boards.straightdope.com/u/gonzomax)\ **Post date:** [September 5, 2009, 1:57am UTC](https://boards.straightdope.com/t/when-has-government-intervention-harmed-a-service-or-economic-sector/508844/22 "2009-09-05T01:57:37Z")
> [@Sinaijon](#): > > I can also give examples of the corollary: private companies doing something better than the government. The Internet is the prime example of that, or land development by the railroads back in the late 1800’s, or the Homestead Act, etc. The internet was invented in a project funded by the Defense Department. It remained a government project for a long time. ---
**Author:** ![sleestak](https://avatars.discourse-cdn.com/v4/letter/s/919ad9/32.png) [@sleestak](https://boards.straightdope.com/u/sleestak)\ **Post date:** [September 5, 2009, 2:39am UTC](https://boards.straightdope.com/t/when-has-government-intervention-harmed-a-service-or-economic-sector/508844/23 "2009-09-05T02:39:42Z")
> [@foolsguinea](#): > > I think it did, in a way, by changing regulations. But what would have happened in a _laissez-faire_ system? Seems like the historical change was a change from one government-overseen paradigm to another, or a few tweaks to a given paradigm, not a takeover of a classically liberal economy. Ill effects of changing a system already informed by New Deal policies don’t necessarily argue for a change to a non-New Deal system. > > Also, Thomas Sowell has to work pretty hard for me to take him seriously, sorry. I’ve seen him engage in fallacious & just plain ignorant argument (even by my low & almost trollish standards) too much. > > Skimmed Wallison. His argument is assuming an answer the question I’m asking. Using that as a cite feels like question-begging. Actually, it is not the just loosening of standards, it is Fannie Mae and Freddie Mac being encouraged to a) lend to subprime candidates and b) buying up mortgage backed securities. These policies were pushed by HUD.[Link](http://www.washingtonpost.com/wp-dyn/content/article/2008/06/09/AR2008060902626_2.html). Oh, and Barney Frank\*. > [@](#): > > Sen. Jack Reed (D-R.I.), a member of the Senate banking committee who brokered some of the regulatory reform in the pending bill, said HUD’s homeownership push ignored reality. Another interesting tidbit (that I just learned): > [@](#): > > Due to their quasi-government status, Freddie and Fannie are exempt from state and local taxes and can borrow money at lower rates than their competitors. With these advantages, Freddie and Fannie have cornered the market on mortgage securitization. Most years, Freddie and Fannie help finance 40% of all U.S. mortgages. In the first quarter of 2008, they handled 80% of the market. If Fannie and Freddie were private entities, they would be a considered a monopoly by Department of Justice anti-trust guidelines. From here: [Link](http://blog.heritage.org/2008/06/10/morning-bell-fannie-and-freddie-at-core-of-housing-crisis/) Info about the regulation ans [subsides](http://en.wikipedia.org/wiki/Fannie_Mae#Federal_subsidies): > [@](#): > > Federal subsidies > The FNMA receives no direct federal government aid. However, the corporation and the securities it issues are widely believed to be implicitly backed by the U.S. government. In 1996, the Congressional Budget Office wrote “there have been no federal appropriations for cash payments or guarantee subsidies. But in the place of federal funds the government provides considerable unpriced benefits to the enterprises… Government-sponsored enterprises are costly to the government and taxpayers… the benefit is currently worth $6.5 billion annually.”.[30] Fannie Mae and Freddie Mac are allowed to hold less capital than normal financial institutions: e.g., it is allowed to sell mortgage-backed securities with only half as much capital backing them up as would be required of other financial institutions. Specifically, regulations exist through the FDIC Bank Holding Company Act that govern the solvency of financial institutions. The regulations require normal financial institutions to maintain a capital/asset ratio greater than or equal to 3%.[31] The GSEs, Fannie Mae and Freddie Mac, are exempt from this capital/asset ratio requirement and can, and often do, maintain a capital/asset ratio less than 3%. The additional leverage allows for greater returns in good times, but put the companies at greater risk in bad times, such as during the current subprime mortgage crisis. FNMA is also exempt from state and local taxes. In addition, FNMA and FHLMC are exempt from SEC filing requirements; however, both GSEs voluntarily file their SEC 10-K and 10-Q. So, these two government created and sponsored entities are influenced by government agencies (HUD) and do not have to comply with the rules that other companies must follow. Government intervention? What could possibly go wrong? On a side note, Barney Frank was [sleeping](http://www.businessandmedia.org/printer/2008/20080924145932.aspx)with a Fannie Mae executive. His committee regulated Fannie Mae. I am extremely surprised that this little fact never got much coverage. Slee ---
**Author:** ![foolsguinea](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/foolsguinea/32/14751_2.png) [@foolsguinea](https://boards.straightdope.com/u/foolsguinea)\ **Post date:** [September 5, 2009, 5:26am UTC](https://boards.straightdope.com/t/when-has-government-intervention-harmed-a-service-or-economic-sector/508844/24 "2009-09-05T05:26:31Z")
Well, I’m not a big fan of GSE’s. They seem like a way to have it both ways; to have government advantages without the restrictions & responsibilities of a civil agency. ---
**Author:** ![Martini\_Enfield](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/martini_enfield/32/11123_2.png) [@Martini\_Enfield](https://boards.straightdope.com/u/Martini_Enfield)\ **Post date:** [September 5, 2009, 5:47am UTC](https://boards.straightdope.com/t/when-has-government-intervention-harmed-a-service-or-economic-sector/508844/25 "2009-09-05T05:47:20Z")
The [Northern Territory Intervention](http://en.wikipedia.org/wiki/Northern_Territory_intervention) has been an expensive PR disaster that doesn’t appear to have fixed much, from what I’ve read. ---
**Author:** ![foolsguinea](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/foolsguinea/32/14751_2.png) [@foolsguinea](https://boards.straightdope.com/u/foolsguinea)\ **Post date:** [September 5, 2009, 6:05am UTC](https://boards.straightdope.com/t/when-has-government-intervention-harmed-a-service-or-economic-sector/508844/26 "2009-09-05T06:05:23Z")
> [@kunilou](#): > > I didn’t (and don’t) claim that antitrust/antimonopoly regulations are a bad thing. Your OP didn’t ask about business ethics, only efficiency. So the next time a Rightie says, “government always makes things worse!” I can say, “not for business ethics, only efficiency”? 😉 ---
**Author:** ![sleestak](https://avatars.discourse-cdn.com/v4/letter/s/919ad9/32.png) [@sleestak](https://boards.straightdope.com/u/sleestak)\ **Post date:** [September 5, 2009, 7:09am UTC](https://boards.straightdope.com/t/when-has-government-intervention-harmed-a-service-or-economic-sector/508844/27 "2009-09-05T07:09:37Z")
> [@foolsguinea](#): > > Well, I’m not a big fan of GSE’s. They seem like a way to have it both ways; to have government advantages without the restrictions & responsibilities of a civil agency. Well, your questions were: > [@](#): > > When has government entered a sector & made it less effective? > > When has government entered a sector & made it less efficient? > > When has government entered a sector & made it more expensive? Fannie Mae and Freddie Mac fit all those and more. The government entered the housing sector and, via HUD, pushed policies that caused great harm. Heck, Fannie and Freddie also bought tons of mortgage backed securities from other companies which made the risks to the loan originators trivial. Why bother to check the viability of a loan when Fannie and Freddie will buy it? On the bright side, I bought a house from Freddie Mac. Got a great deal because Freddie made the loan and the house was foreclosed on within 6 months of the closing. I got a third off the original price because Freddie made a loan to a person who couldn’t even make 2 months worth of payments. Slee ---
**Author:** ![foolsguinea](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/foolsguinea/32/14751_2.png) [@foolsguinea](https://boards.straightdope.com/u/foolsguinea)\ **Post date:** [September 5, 2009, 7:22am UTC](https://boards.straightdope.com/t/when-has-government-intervention-harmed-a-service-or-economic-sector/508844/28 "2009-09-05T07:22:23Z")
What was the housing sector like before FNMA & FHLMC? ---
**Author:** ![Hellestal](https://avatars.discourse-cdn.com/v4/letter/h/3ab097/32.png) [@Hellestal](https://boards.straightdope.com/u/Hellestal)\ **Post date:** [September 5, 2009, 9:56am UTC](https://boards.straightdope.com/t/when-has-government-intervention-harmed-a-service-or-economic-sector/508844/29 "2009-09-05T09:56:17Z")
> [@alphaboi867](#): > > Many states do in fact have government run [liquor stores](http://www.lcb.state.pa.us/). Right. Liquor stores, not grocery stores. Liquor is treated differently because it’s a drug and drugs are _eeeeeeevvvvvil_. Grocery stores aren’t owned by the government, and nobody tries to argue that they should be. > [@sleestak](#): > > Actually, it is not the just loosening of standards, it is Fannie Mae and Freddie Mac being encouraged to a) lend to subprime candidates and b) buying up mortgage backed securities. F&F didn’t help the situation, but even there, you have a government initiative that merely exacerbated a problem created in the private markets. They didn’t cause the subprime crisis themselves. Fannie and Freddie avoided the first wave of those crap mortgages. They only took the plunge after Wall Street gobbled up about half of their market share. It’s a shame that they went ahead with it, but they did it to compete in the distorted market, just like a truly private company would’ve done. Obviously, they made matters worse, but this still isn’t a situation where the government is uniquely incompetent compared to private actors. ---
**Author:** ![Martin\_Hyde](https://avatars.discourse-cdn.com/v4/letter/m/47e85d/32.png) [@Martin\_Hyde](https://boards.straightdope.com/u/Martin_Hyde)\ **Post date:** [September 6, 2009, 3:39pm UTC](https://boards.straightdope.com/t/when-has-government-intervention-harmed-a-service-or-economic-sector/508844/30 "2009-09-06T15:39:29Z")
In answer to your plain text question “has government intervention harmed a service or economic sector” the answer is an unequivocal yes. Read about “The Great Leap Forward” some time. If you’re _exclusively_ talking about the United States then it is of course a much more nuanced issue. In the United States, historically and even into the modern era the government’s role in the economy has typically been one of a regulator, not an active competitor against private enterprise. As with any regulatory action, there are almost always “positives and negatives” and thus you’ll have detractors and supporters. For example the Smoot-Hawley Tariff is generally viewed as a disastrous government policy that in great part contributed to the Great Depression. On the other hand, many economists argue that the effects of the tariff are generally exaggerated and that it did not have nearly as significant an impact as popular wisdom maintains. You’ll always find supporters of rent control. However prohibition and recent legislation aimed at curbing internet gambling are **unequivocal** examples of government intervention harming an economic sector. Prohibition wiped out many American brewers and lead to a nearly 80 year period in which most beer made in the United States was flavorless swill. The recent legislation aimed at preventing Americans from transferring funds to and from internet gambling entities obviously didn’t help that industry whatsoever, and clearly harmed it. If you’re looking for examples of government being outperformed by the private sector I’d look into “State Investment Management Boards.” Most of the 50 states (if not all of them) are active investors in the market, and attempt to generate nice returns on the money of State employees. The boards typically manage the large pension funds for State employees like teachers and police officers and other civil servants. These state operated funds are routinely outperformed by the private sector. ---
**Author:** ![DanBlather](https://avatars.discourse-cdn.com/v4/letter/d/f4b2a3/32.png) [@DanBlather](https://boards.straightdope.com/u/DanBlather)\ **Post date:** [September 6, 2009, 3:50pm UTC](https://boards.straightdope.com/t/when-has-government-intervention-harmed-a-service-or-economic-sector/508844/31 "2009-09-06T15:50:46Z")
I don’t think people understand how much govt intervention has changed the very medium we are using to discuss this. The govt stepped in early to give AT&T a monopoly. This allowed people to call each other, which before was often not possible if you were using different companies’ systems. Wires had to be pulled just once, and rates were capped by the govt so rural people did not have to pay fees that refelected the relatively higher cost of infrastructure. Then of course there is the Internet, which as a previous poster reminds us, was a govt sponsored project. Imagine the difference if TCP/IP was patented. The PC market was completely changed by govt regulation. IBM had been forced to unbundle their HW and SW offerings in the mainframe market allowing Amdahl and other mainframe vendors to compete. When IBM created the PC they had to unbundle the OS from the platform. This allowed Microsoft to develop as a separate company that could offer the same SW to different vendors making IBM-compatible HW. Now that Microsoft is dominant the govt has made sure they don’t use that position to freeze out other SW vendors. Thus IE was “unbundled” from the OS so competing browsers could gain traction. Microsoft also did not use it’s considerable clout to elminate Apple which they probably could have done by not offering Office for the Mac. The govt has prevented Intel from using hard-ball tactics to put AMD put out business; this has spurred ever faster and cheaper processors. The point, is that the govt has stepped in repeatedly to create and prevent monopolies, and to develop underlying technology. We can point to the Internet as one of the great successes of govt intervention to strengthen private businesses. ---
**Author:** ![Digital\_Stimulus](https://avatars.discourse-cdn.com/v4/letter/d/aeb1de/32.png) [@Digital\_Stimulus](https://boards.straightdope.com/u/Digital_Stimulus)\ **Post date:** [September 6, 2009, 4:41pm UTC](https://boards.straightdope.com/t/when-has-government-intervention-harmed-a-service-or-economic-sector/508844/32 "2009-09-06T16:41:01Z")
> [@DanBlather](#): > > …We can point to the Internet as one of the great successes of govt intervention to strengthen private businesses. Since it’s been persistently bothering me, is this what **Sinaijon** was saying back in post #7? If so, I _totally_ misunderstood him – I read his post as the exact opposite, actually. Which is why I asked for clarification. It’s clear that in some cases, government intervention is beneficial and in others it’s detrimental (so long as one isn’t defining the intervention itself as detrimental). I think **Martin Hyde** has it pretty much right in the post above yours. ---
**Author:** ![Martin\_Hyde](https://avatars.discourse-cdn.com/v4/letter/m/47e85d/32.png) [@Martin\_Hyde](https://boards.straightdope.com/u/Martin_Hyde)\ **Post date:** [September 6, 2009, 4:48pm UTC](https://boards.straightdope.com/t/when-has-government-intervention-harmed-a-service-or-economic-sector/508844/33 "2009-09-06T16:48:41Z")
The medium we’re using is actually the World Wide Web, the Internet is just how we’re connected to that medium. WWW was created mostly by the initiative of physicist Tim Berners-Lee, and most people greatly admire him because he could easily have not developed the idea at CERN and instead done so privately and patented it–he would certainly be extremely wealthy today if he had done so. Unlike many software/hardware/networking innovations over the years, the World Wide Web was by and large **not** the result of slow progress and development by thousands of engineers but an old-fashioned invention fueled by the spark of imagination of one single man. You’re quite spot-on about the internet though, its development is definitely a positive of government action. ---
**Author:** ![Trom](https://avatars.discourse-cdn.com/v4/letter/t/958977/32.png) [@Trom](https://boards.straightdope.com/u/Trom)\ **Post date:** [September 8, 2009, 3:22pm UTC](https://boards.straightdope.com/t/when-has-government-intervention-harmed-a-service-or-economic-sector/508844/34 "2009-09-08T15:22:12Z")
There is a government imposed ban on trading futures on onions. During recent years, the onion market has been [more](http://money.cnn.com/2008/06/27/news/economy/The_onion_conundrum_Birger.fortune/) [volatile](http://online.wsj.com/article/SB121547293036933987.html) than other commodity markets. ---
**Author:** ![Digital\_Stimulus](https://avatars.discourse-cdn.com/v4/letter/d/aeb1de/32.png) [@Digital\_Stimulus](https://boards.straightdope.com/u/Digital_Stimulus)\ **Post date:** [September 8, 2009, 4:22pm UTC](https://boards.straightdope.com/t/when-has-government-intervention-harmed-a-service-or-economic-sector/508844/35 "2009-09-08T16:22:48Z")
> [@Trom](#): > > There is a government imposed ban on trading futures on onions. During recent years, the onion market has been [more](http://money.cnn.com/2008/06/27/news/economy/The_onion_conundrum_Birger.fortune/) [volatile](http://online.wsj.com/article/SB121547293036933987.html) than other commodity markets. In counterpoint, speaking of futures trading – and I’m assuming your point is that government involvement in onion futures has screwed up that market – it’s my understanding that oil futures are largely blamed for the wildly fluctuating gas prices over the past few years, promoting mini-bubbles and increasing volatility. With, AIUI, very little government involvement (at least, not beyond the norm for futures trading). I know this has come up in other threads and some have argued that futures in general (and oil futures and the way they’re currently handled in particular) are fine. But never with enough convincing support to outweigh other (hard news) sources. I’ll cop to ignorance here, and hope that some consensus is out there… ---
**Author:** ![Trom](https://avatars.discourse-cdn.com/v4/letter/t/958977/32.png) [@Trom](https://boards.straightdope.com/u/Trom)\ **Post date:** [September 8, 2009, 7:47pm UTC](https://boards.straightdope.com/t/when-has-government-intervention-harmed-a-service-or-economic-sector/508844/36 "2009-09-08T19:47:35Z")
> [@Digital\_Stimulus](#): > > In counterpoint, speaking of futures trading – and I’m assuming your point is that government involvement in onion futures has screwed up that market – it’s my understanding that oil futures are largely blamed for the wildly fluctuating gas prices over the past few years, promoting mini-bubbles and increasing volatility. With, AIUI, very little government involvement (at least, not beyond the norm for futures trading). > > I know this has come up in other threads and some have argued that futures in general (and oil futures and the way they’re currently handled in particular) are fine. But never with enough convincing support to outweigh other (hard news) sources. I’ll cop to ignorance here, and hope that some consensus is out there… From this [paper’s](http://www.isda.org/speeches/pdf/Onion-futures-Annex.pdf)(pdf) abstract: > [@](#): > > In this paper, the divergence between popular and professional opinion on speculation in general > and futures markets in particular is explored. Along the way, a synopsis of prevailing popular > attitudes on futures markets is presented, and an outline of a formal model of futures markets > and its implications for commodity price volatility are sketched. The heart of the analysis is drawn > from the historical record on the establishment and prohibition of futures markets. Briefly, the > results presented in this paper strongly suggest that futures markets were associated with—and most > likely caused—lower commodity price volatility. The paper concludes with a discussion of potential > sources of popular antagonism against futures markets. From the paper’s intro: > [@](#): > > Religious and social sentiments have generally aligned themselves strongly against the > role of speculators, middlemen, and traders. Only in relatively recent times has some of > this stigma begun to wear off, yet popular resentment of such agents remains undeniably > widespread. Of course, these same actors are celebrated in the lore of the economics profession. > Smith, Walras, Keynes, and countless others have reserved a crucial role for them > in the smooth functioning of capitalism. Broadly then, what this paper attempts to address > is the role of the speculator in the market. Specifically, the relationship between futures > markets, speculation, and commodity price volatility is explored. This particular example > is undoubtedly salient: in few other areas do popular views and those of most economists > more widely diverge. In my experience, I haven’t seen an argument blaming the futures markets for extremely high prices that has made sense. ---
**Author:** ![Patty\_O\_Furniture](https://avatars.discourse-cdn.com/v4/letter/p/96bed5/32.png) [@Patty\_O\_Furniture](https://boards.straightdope.com/u/Patty_O_Furniture)\ **Post date:** [September 8, 2009, 8:52pm UTC](https://boards.straightdope.com/t/when-has-government-intervention-harmed-a-service-or-economic-sector/508844/37 "2009-09-08T20:52:38Z")
> [@Oakminster](#): > > Phone service went downhill after they went trust busting on Ma Bell. How did phone service go downhill? I can buy all kinds of fancy phones from whoever wants to make and sell them now. And I can do my own house wiring. Maybe at 45, I’m not old enough to remember the good ol’ days but what are you reminiscing about? ---
**Author:** ![Digital\_Stimulus](https://avatars.discourse-cdn.com/v4/letter/d/aeb1de/32.png) [@Digital\_Stimulus](https://boards.straightdope.com/u/Digital_Stimulus)\ **Post date:** [September 8, 2009, 9:32pm UTC](https://boards.straightdope.com/t/when-has-government-intervention-harmed-a-service-or-economic-sector/508844/38 "2009-09-08T21:32:46Z")
> [@Trom](#): > > In my experience, I haven’t seen an argument blaming the futures markets for extremely high prices that has made sense. It’s nice that you can cite a paper that supports your point. From the (very) little I’ve looked at it, in general, I find that futures markets are well-founded, make sense, and do reduce volatility (when applied to _commercial_ traders, or _hedgers_; not so much for _noncommercial_ traders, or _speculators_). So there’s that. But it would be even nicer if you responded with a cite that addresses _my_ point. Preferably something that covers the summer 2008 explosion (heh) in gasoline prices…which, again AIUI, was directly attributable to the oil futures market. Y’know…perhaps, like [this paper](http://www.bakerinstitute.org/publications/EF-pub-MedlockJaffeOilFuturesMarket-082609.pdf) (link to pdf). I don’t have time right now to read it thoroughly (and I doubt that I’ll be able to summon the desire), but I did just glance over it. If I understood it properly, they were saying that the correlations between volatility and percentage of the market share of non-commercial traders was striking (their word), to the point of having to willfully ignore the evidence. However, they also note two things: 1) correlation is not causation, and 2) the CFTC found no evidence of a problem – although the authors believe that the CFTC is not asking the right questions. If I’ve misread the report, I’d appreciate a correction. ---
**Author:** ![flickster](https://avatars.discourse-cdn.com/v4/letter/f/7bcc69/32.png) [@flickster](https://boards.straightdope.com/u/flickster)\ **Post date:** [September 8, 2009, 10:12pm UTC](https://boards.straightdope.com/t/when-has-government-intervention-harmed-a-service-or-economic-sector/508844/39 "2009-09-08T22:12:17Z")
> [@foolsguinea](#): > > When has government entered a sector & made it more expensive? The Emergency Medical Treatment and Active Labor Act of 1986, which requires treatment provide care to anyone needing emergency treatment regardless of citizenship, legal status or ability to pay. Medical care institutions were placed over a barrel by requiring if they wanted to participate in medicare treatment, then they also had to provide the free treatment. Sounds like a grand idea, but has resulted on skyrocketing costs charged to those with insurance, or that pay in cash, in order to subsidize for those that can’t. ---
**Author:** ![drachillix](https://avatars.discourse-cdn.com/v4/letter/d/48db29/32.png) [@drachillix](https://boards.straightdope.com/u/drachillix)\ **Post date:** [September 9, 2009, 1:47am UTC](https://boards.straightdope.com/t/when-has-government-intervention-harmed-a-service-or-economic-sector/508844/40 "2009-09-09T01:47:02Z")
Thor Vs IRS The decision that made destroying books more cost effective for publishers rather than keeping older titles available in print… [http://www.sfwa.org/bulletin/articles/thor.htm](http://www.sfwa.org/bulletin/articles/thor.htm) [Previous page](https://boards.straightdope.com/t/when-has-government-intervention-harmed-a-service-or-economic-sector/508844.md?page=1) [Next page](https://boards.straightdope.com/t/when-has-government-intervention-harmed-a-service-or-economic-sector/508844.md?page=3)