Thank you Jeff for your thoughtful comments…here are some of my observations.

First, I do think we have some agreement on many of your points. Here are some of the differences that I would highlight.

Regulation is not just something that happens in government. Here are some observations from my own experience. At U.S. Robotics one of the engineering groups I managed was responsible for getting regulatory approval not just for the US but for many countries in the world. We called this homologation. In the US we had to get Underwriters Lab (UL) and FCC approvals to sell in the US. We also sold modems into hundreds of other countries and they all had their own similar approval requirements. These requirements were for consumer safety and radio interference issues.

In the 90s Microsoft decided they would implement a hardware certification process. It was practically impossible to sell modems without the Microsoft certification approval. It was also practically impossible to get all our modems every quarter through the huge bureaucracy of Microsoft. They certainly stifled our competitive efforts based on their regulatory approval.

Microsoft has also required a software vendor like myself to pay private regulatory companies a yearly fee which can be very pricey to “digitally sign” our software. They claim this is to keep hackers from infecting software products. However, there are many very good products available for software vendors like ‘obfuscators’ (which I use) that keep hackers out of code. The actual incidents that Microsoft rationalizes its ‘code signing’ process for is statistically very minimal. However, they do get kick backs from their ‘approved’ code signing companies.

Now, with the release of Windows 7, Microsoft has taken another regulatory step by reporting software that does not have a ‘reputation’. This has nothing to do with the code signing. A company may have their code digitally signed and still run into the ‘reputation virus’. Microsoft reports it as a virus. However, if you read what the ‘reputation virus’ is; it only means that Microsoft has never heard of you. Norton and other virus programs take the Microsoft virus alert and automatically delete the downloaded trial software we produce. They report it as a virus. Microsoft readily admits that 90% of the folks that see the virus alert will not install the product. This means software vendors like myself are not permitted to compete in the ‘free market’ of the software business. I have two products for download on the internet. Both are exactly the same code. The only difference is one byte in a text, configuration file that allows the product to come up as either product. One of my software downloads is allowed by Microsoft and Norton, the other is not. It is reported as a virus and automatically deleted. This affects 90% of my new and upcoming business on the Windows 7 platform. I have talked to literally hundreds of other software vendors on the web who are in total agreement with my contention of Microsoft’s market monopolizing practices.

There are many other cases of ‘private market’ regulation that I could cite but this can probably suffice. The idea is that the corrosive effect of regulation is not just a charge that can be levied against the government. It happens all the time in the ‘free market’ as well. Does this effect competition adversely? Absolutely. Is there perhaps some need for regulation by both the government and big corporations? Probably, but as Jeff suggests it is also used as an excuse to kill competition. However, not as a component of government but of the private market itself. I think most folks agree that there is some need for market regulation by an impartial regulatory agency. However, effective regulatory restrictions by large corporations with vested interests are a market distortion that happens often and distorts the ‘free market’ ideal based on competition. When the government becomes a vehicle for the capitalists that do not want competition as Jeff suggest, it is certainly corporatism which is one of the hallmarks of historical fascism.

It is not a matter of is there corporatism or crony capitalism but to what degree it happens not just by government but by big corporations as well. To the degree that this happens, it is not the ideal of the ‘free market’ but a hybrid practical reality of how it actually works. The Bush administration was a perfect example of what happens when regulatory agencies rubber stamp big business. Oil and gas regulation, toy regulations, financial market regulations and more were thrown out the window and companies were given free reign over regulators. Corporations were even discovered to be wining, dining and giving the regulators luxurious trips. This was not the government interfering with the market but giving it carte blanche to do whatever it wanted. The ideal of small footprint regulation, as Jeff espouses, was realized by the Bush administration and it ultimately resulted in the recession. The housing crisis was not caused by too much regulation but the absolute lack of regulation in the derivatives market. One email at Standard and Poor’s stated, “Rating agencies continue to create and [sic] even bigger monster–the CDO [Collateralized debt obligations ] market. Let’s hope we are all wealthy and retired by the time this house of cards falters.” Moody’s and Standard and Poor’s, both private companies, are considered to have elevated ratings on CDO’s which are mortgage backed securities to minimize the risk and, in so doing, increase the profits for investors. See The Housing Crisis – Research Revisted, this and this for more data.

Another tactic of the ‘free market’ is price collusion and price fixing. Individual multinational corporations and conglomerations of individual market segment corporations have often been accused of doing this. The diamond market is notorious for this as well as Oil and Gas (remember Standard Oil, Rockefeller) and railroad industries. While this kind of activity in normally associated with monopolies it is still a reality of the practical workings of the free market. It seems to me that thinking of this kind of activity as a rare monopoly situation allows a sort of effective monopolizing in the actual market. Jeff states that, “Thus, monopolies don’t stay monopolies for long unless they are making consumers happy” but how does this measure up? Remember AT&T, officially deemed a monopoly by the courts, -they monopolized the market for decades…is this a short time? In any case, the kind of activity that goes on daily in the market by Microsoft and others has not acquired the label of ‘monopoly’ but shows that monopolizing activity is not a rare court decided phenomenon of the market; it is an analog, practical reality of the market. Microsoft has been brought to court and found guilty at least once that I know of for market monopolizing practices. This kind of activity has to get extremely severe before a public, official pronouncement is made.

Jeff quotes Smith here, “They often propose new laws and regulations, as Smith points out, that are to the benefit of their companies, but not to the benefit of society as a whole (i.e., to consumers).” However, Adam Smith himself, proposed over one hundred pages of financial industry regulations in the “Wealth of Nations” which have largely been neglected by the modern market place. I suppose Adam Smith himself was one the “they”s that Jeff refers to.

My contention is that it is extremely idealistic to think that the ‘free market’ is, in practice, all about competition. Yes, that is a positive aspect of the real market place but it is still an ideal and does not reflect a large part of how the market works. I also agree that government can become the problem when it effectively acts as a monopolist in the market, corporatism. However, as I have shown this is not just an essential evil of the government but occurs in the private market as well. My contention has always been that the free market works best for the public interest when government and big corporations collide. While the David and Goliath story may be cute, two Goliaths tend to do more damage to each other. The government in a democracy is ideally supposed to be the public defender and not the corporate defender although this ideal too has shown itself to be different from the reality. The answer is not to throw in the governmental towel as we did in the Bush administration but to make sure that we elect politicians that will oppose corporatism and government collusion with capitalists.

I find it interesting that Jeff thinks capitalists are capitalism’s biggest detractors. To me, this is like suggesting that churches are Christianities biggest problem. Capitalists vote Republican for the most part. If they wanted more government it seems to me like they would vote Democrat as the Republicans are fond of laying this charge on the Democrats. Republicans publicly state, almost daily, that they are on the side of business and the capitalists. Therefore, they publicly acknowledge that either they welcome the interference with the market that Jeff denounces or they want to return to the lassie faire capitalism of the Bush administration. While the Democrats may be complicitous in Jeff’s charge as well, they are not so bold proclaiming it which might account for something positive (or not). Are we to believe that the best proponents of a philosophy are intent on its destruction? This certainly may add some credence to some of Nietzsche’s discussion and post modernism but it also is a living demonstration of the inability of the system to rationalize itself based on its members. If major and important members are bent on the destruction of the market, are we suggesting that the only way to redeem the ‘free market’ is by the ideal that it proposes? If the reality has anything to do with some of the practicalities that I have suggested and seen, then ‘free market’ capitalism seems like it gets its validation based on an ‘otherworldly’ idealism not unlike Christianity. Are we supposed to believe that the ‘free market’ liberties in the Bush administration were problems of too much government still and therefore salvage the validity of the ‘free market’ ideal? I think this is a bit much to swallow. It is like continually suggesting that historical Christianity is not the ‘true’ Christianity in order to preserve an ideal Christianity that may appear dubious in practice. At some point, even the best metaphysician must live and breathe and have their existence in the world. Dreams are nice but realties are necessary. I do not advocate overthrowing capitalism but simply dealing with the reality of it without using its ideal as a pretense to justify its inadequacies. I think simple answers that make the government the scapegoat for the failures of capitalism are there to reinforce that idealism of a flawed system and enable us to overlook fundamental issues that need to be addressed. I prefer to address the issues directly and smartly while making the market more of a level playing field and less rigged against the interests of the public; a primary concern for Adam Smith and Karl Marx as well.

For me, the problem is better framed not in terms of government versus the private market but big versus small. Is the ideal of the free market demonstrated in TBTF (too big to fail)? What does competition have to do with propping up a business because it is too big? If competition always produces a better value for the consumer how is it that a ‘big’, that is too big to let the competition kill it can come from the ideal Jeff defends (remember Bush and Paulson)? If the ideal of the ‘free market’ is actually realized in practice, is this yet another glitch in the system that we have to rationalize away? How many times can we look the other way and still pronounce the ‘free market’ holy? What interest is served in ‘free market’ apologetics? My point is that ‘big’ is another name for effective monopoly in many cases. I would also apply this to the government with this caveat…the ideal of the government should be efficiency not small. If we make the government a David I would wager that Goliath will win the battle 99 out of 100 times. We need to make the big of the government our friend and defender because if we give that up we will have the mercy of the ‘free market’ and the legacy of George Bush as our BFFs.