Lux Lucet

As I pointed out in my last post, Scripture assigns the civil magistrate the job of punishing evildoers.  This is far different from the modern regulatory state, in which the magistrate punishes everyone with burdensome regulations in order to prevent criminal activity.  But the problem with the theory of crime prevention by regulation doesn’t stop with the unjust punishment of the innocent.  Oddly enough, the regulatory state creates perverse incentives that can make it more likely that the crimes supposedly being prevented will, in fact, be comitted.

Take the case of Bernard Madoff.  Here was a man who ran what was apparently, apart from those operated by the US federal government,  the largest ponzi scheme in history.  Wasn’t the SEC created to prevent this sort of thing?  Well, yes, but by setting up a watchdog agency to protect investors, the federal government reduced the incentive for people to exercise due diligence when choosing an investment advisor or broker-dealer.  And when the incentive for doing something is reduced, economic law tells us that there will be less of it.  “After all,” people reason, “if Bernie Madoff is being supervised and audited by the watchful eye of the SEC, and they’ve given him their seal of approval, then he must be alright.”  But he wasn’t alright, and perhaps if  investors had had more incentive to check him out, he wouldn’t have been able to fleece them for the billions that he did.

Another problem with the regulatory state is its incompetence.  In the case of Madoff, the SEC had several opportunities going back many years to bust Madoff but competely dropped the ball.  And what is worse, the failure of the reglators is never seen as the failure of a fallacious theory of criminal justice, rather it becomes an excuse for another round of government regualtion more intrusive and expensive than the last.

The consistent application of the biblical principle of criminla justice, where there is no crime, there should be no punishment, would bring to an end to the regulatory state in this country.  That’s bad news for the bereaucrats and statists, but good news for those who love liberty.