Regulations Impede Rationality

A liberal friend was recently lamenting personnel decisions being made at her workplace. I pointed out that, in a free market, irrational decisions are ultimately punished in the marketplace. But, she replied, most people aren’t rational, and therefore we need regulations to protect individuals from the irrational.

While I would agree that her premise—most people aren’t rational—is true, I want to focus on her conclusion. For now, I will simply say that most people aren’t rational because they have been taught to reject reason.

Do regulations protect individuals from the irrational? To answer this, let us first look at the nature of regulations.

A regulation is a government decree that prescribes or proscribes certain actions. For example, a regulation may require employers to give preferential treatment to certain individuals, such as minorities and women, in personnel decisions. Or, a regulation may prohibit the use of particular characteristics, such as race and gender, in personnel decisions. In each instance, government dictates how individuals may or may not act, regardless of their own judgment. Indeed, the purpose of regulations is to compel individuals to act contrary to their judgment. After all, if an individual did not use race or gender in personnel decisions, a regulation would not be necessary.

Admittedly, there are individuals who use irrelevant criteria when hiring or promoting employees. But there are individuals who use irrelevant criteria when making any decision, from which car to purchase to whom to marry. The fact that some individuals make irrational decisions does not justify government regulations. To claim otherwise is open the door to government regulation of automobile purchases, marriage, and every other aspect of life.

My friend argued that irrational personnel decisions impact the lives of others and limit the opportunities of those who are adversely affected. This may be true in the short term. But in a free market, irrational decisions are ultimately punished. For example, if an employer refuses to hire or serve blacks, he will limit his labor pool and his customer base. More enlightened competitors will hire on the basis of talent, and therefore produce better products and services. His larger customer base will include blacks and non-racist whites.

It is possible that some regulations protect some individuals from being victims of the irrational. So? Government regulation of marriage would likely prevent some individuals from making a heartbreaking mistake. Government regulations cannot and do not prevent irrationality. Quite the contrary, they prevent rationality.

Regulations force individuals to act contrary to their own judgment. This applies to both irrational and rational decisions.

For example, a regulation may prohibit an employer from using race or gender when considering a promotion. However, it is a fact that employers are regularly sued for discriminating on the basis of race or gender. And the “evidence” consists of the percentage of women, blacks, etc. in particular positions. As a result, employers often use race and gender when making such decisions for fear of lawsuits and government prosecution. In other words, the employer is prevented from making a rational decision on the basis of talent and ability, and instead must make an irrational decision on the basis of race or gender.

Every regulation impedes and stifles rationality by forcing individuals to act in accordance with government decrees. In contrast, freedom—the absence of government coercion—creates a social context in which individuals can be rational. Freedom recognizes the moral right of each individual to live his life as he judges best in the pursuit of his own personal happiness. The extent of his rationality will ultimately determine the level of his success.

In a free market, the most rational ideas ultimately triumph. Rational ideas lead to the successful creation of the values individuals want and need. Freedom creates a social context in which entrepreneurs and visionaries can demonstrate the truth of their ideas. When they are wrong, only they and those who voluntarily associate with them suffer. When they are correct, all of us benefit.

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