A Moral Case for Breaking the Law

When the WW2 Museum dedicated P-51 last week, I recalled the words of Martin Luther King. He said, “One has a moral responsibility to disobey unjust laws.”

Technology is moving at an unbelievable pace.  There are things that can happen that weren’t even contemplated by regulators in the past.  As an investor, I invest in things that potentially can change the way the world does business, interacts, and shares information.  Startup companies often will rub up against regulations.

Regulations aren’t what you assume.  Economic Nobel Prize winning Chicago Booth Professor George Stigler found, many times regulations aren’t written to protect innocent people.  They are written to provide a regulatory barrier for the corporations that endorse them.   I think this is especially topical today as we see politicians rail against special interests.

Stigler uses a simple model of regulation: A regulator faces special interest pressure from producers and electoral pressure from consumers. The special interest pressure is always more “persuasive,” so producers always win. Regulations are passed only for the benefit of large firms, not for the benefit or protection of consumers.

Are these regulations that are passed “moral” any more than Jim Crow laws passed after the Civil War?

I think this is a really good argument to have as government tries to extract value out of companies like Uber and AirBnb.  Shouldn’t people be able to freely transact?  If I own my property, why should I have to pay taxes to the government on it’s private use when I already pay property taxes to that same government?

As we have seen with the financial crisis, the SEC didn’t protect anyone.  They did investigate post crash and mete out a bunch of fines to banks and other companies.  Virtually no one went to jail.  They also ignored the quasi government organizations that enabled the bankers.  Does anyone think Dodd-Frank will help?

The federal regulatory register is chock full of horrible regulation that makes zero sense in today’s economy.  The regulations actually stop people from engaging in business that could help people.  Every single industry has lots of regulations that were put there by big companies to keep smaller companies from competing.  Just a tip, it’s not Congress, it’s the alphabet soup of government agencies that get in the way.

Increasingly, I think that startups should take on the immoral regulations in the government register.  It’s their moral responsibility.  It’s the moral responsibility of venture capitalists to fund them.  Who will be our Tuskegee Airman?

Added

Here is another viewpoint from 538

At issue are occupational licensing laws — rules, usually at the state or local level, that require workers to get a government-issued license to hold certain jobs. That makes sense for doctors and accountants, but the requirements are increasingly spreading to barbers, cosmetologists and even landscapers. (The New York Department of Labor lists 130 occupations that require licenses.) In many cases the rules seem designed less to protect consumers than to protect politically connected workers and businesses who want to deter potential competition — what economists call “rent-seeking.” As Iwrote back in February, politicians and experts from across the political spectrum are increasingly concerned about the damage licensing and other forms of rent-seeking are doing to the economy.

Are these “just” regulations?  Can we use tech so we don’t need them?  Should a tech company start a business and go against them because the regulation is immoral?  After all, it stops someone from putting food on their table by engaging in commerce or self employing themselves in a respectable occupation.

Thanks for the link Mattermark

Thanks for the link Instapundit

My friend Andy Swan put this podcast out today. Listen to it.

  • JLM

    .
    There is likely no bigger skeptic of gov’t regulation than mois but I draw the line at VCs funding the breaking of laws with OPM (in this instance the money of limited partners such as pension funds).

    It is one thing to take a stand and suffer the consequences — MLK famously went to jail. It is something altogether different to use OPM and put it at risk because of a personal view of things.

    One has to look through the situation to the source of the money to ensure that the risk is being taken by the VC and not the LPs.

    So, I am going to have to send you to time out on this one.

    JLM
    http://www.themusingsofthebigredcar.com

    • Uber breaks the law. You shouldn’t fund it? Airbnb breaks the law. You shouldn’t fund it? Now, attorneys and regulators are filing suits and trying to extract value out of both companies. What if we had technology that could allow us to communicate outside regulated FCC spectrum-or broadcast outside of it? How about money-(bitcoin)? Fiat currency is regulated by the government but what about two people engaging in a private transaction? If they deem a cryptocurrency has value, why shouldn’t it? What about farming? It’s been shown that distributed slaughter might be better for animals, and better for the environment-but govt prohibits it. Education? Don’t get me started on how teachers unions mess with laws and regulations to advantage the public school system in their favor-yet we know it doesn’t do a good job of teaching our children.

      • JLM

        .
        When Uber and AirBnB started, they did not announce that they intended to intentionally break the law.

        They also engaged with the regulatory entities many times on the basis of an enforcement action — example the recent settlement in California in which Uber agreed to pay its California drivers $100MM.

        What you are titling as “breaking the law” is, in fact, not breaking the law at all. It is violating a regulation. Huge difference. One is a criminal act while the other is an enforcement action.

        If done intentionally, nonetheless, it may raise the same moral dilemma.

        Yes, I would refrain from funding Uber today given its massive bullying posture and abusive company culture (my words and description).

        You cannot take OPM and engage in behavior that puts it at risk for personal reasons. Tim Cook skates on thin ice when he injects his own personal lifestyle issues in to the workings of a public company.

        There are a number of things you describe that are not regulated, such as using the blockchain for private transactions.

        But when you use it for illegal private transactions, you may end up in prison for the rest of your Silk Road life.

        Just because money or new disruptive technology is involved, one cannot act contrary to the mores of society or morality.

        Only Hillary and Barack get to choose which laws to respect.

        JLM
        http://www.themusingsofthebigredcar.com

        • The laws/regulations existed. They rubbed up against the law/regulation. Technology has taken a leap which allows people to seamlessly rent out a room in their home-or seamlessly give someone a ride for money. The laws on hotels and taxicabs are not the 10 Commandments. They chose to settle because the risk/reward of fighting was higher-but their choosing will cause more and more government entities to try and extract something from them.

          • JLM

            .
            You are mixing your metaphors a bit here.

            All laws are made by men. No revelation there.

            All laws can be changed — even the Constitution provides for its amendment and it has been amended.

            A coop building that provides that there is to be no renting of individual units (a coop rule, not a law) is an agreement amongst a majority of folks. If not, then a majority of folks can seek to amend it.

            Uber is going to operate on the city streets that were paid for with taxpayer money. They will consume part of those streets and should be expected to pay their fair share. Why not?

            Uber seeks to have access to public infrastructure at no cost. That is not fair.

            Uber can innovate on its ridesharing application and technology but it cannot fail to pay its fair share of the cost of public infrastructure.

            JLM
            http://www.themusingsofthebigredcar.com

          • Don’t the drivers of the Uber’s already pay taxes? They paid a license tax, plate tax, gas tax, income tax, sales tax. There is an argument to be made that Uber takes cars off the road-shouldn’t the govt pay them for taking cars off the road? Shouldn’t the public pay them because they are decreasing pollution?

          • JLM

            .
            Indeed, the drivers pay from their 30% of the revenue. Now, Uber gets to pay their fair share also, no?

            There is no argument that I can find that is credible that Uber takes cars off the road. It is a replacement for a taxi and it is in addition for folks like me who use them and continue to own cars.

            Pollution argument — ditto.

            Uber is trying hard not to pay its fair share of payroll taxes and public infrastructure.

            JLM
            http://www.themusingsofthebigredcar.com

          • In most cases, Uber drivers are independent contractors. they opt in. We are getting lost in the weeds on Uber. What about someone sending a photo of a wart or rash to a doctor? If the doctor responds with any sort of treatment, they get fined.

          • kwijino

            Exactly. My question would be, the Constitution says the government must ask permission for what it does. Other than complete abuse of the commerce clause, I see nothing that says the government must get a cut of every transaction of any nature that ever happens.

            I would concur that Uber is avoiding payroll taxes, but like others have said, every driver pays registration, fees and gas tax every time their turn over the ignition in their car. To mangle George Carlin… selling is legal, driving is legal, why isn’t selling driving legal?

          • joeagliozzo

            Having read the article and all the comments, I’d like to make one observation between Airbnb and Uber. Uber, other than public safety issues (for the rider who gets assaulted, etc.), really has no effect on non-Uber users (focusing on customers, not taxi cab competitors). Airbnb, on the other hand, has a business model that often drastically affects “innocent bystanders” – neighbors. So I’m much more in favor of enforcement of existing regulations when it comes to Airbnb and similar businesses that use technology to enable a “taking” or really a confiscation of someone else’s rights, someone who’s not involved in their platform. Airbnb’s real reason for succeeding is a price arbitrage. They are able to take properties not zoned, insured or regulated as short term lodging and turn them into that use, magically through technology. The losers in this transformation are the neighbors of the property who didn’t buy property next to a hotel or short term rental filled with vacationers doing what vacationers are totally entitled to do – have fun as loud and as late as they want to. In addition to regulatory enforcement I wonder when class action attorneys will focus on Airbnb as a company and Airbnb hosts, representing all the aggrieved neighbors who are enduring Airbnb customers next door?

        • CalvinPi

          Hi JLM “Only Hillary and Barack get to choose which laws to respect.”

          While you may have meant that facetiously, the reality puts an end to any social contract in which citizens agree to obey laws they disagree with until those laws are amended or repealed.

          When the leaders tear up the social contract, that contract no longer exists: There is no moral value to refusing to obey a contract the other party has torn up.

          One may argue that our elites have done so or not done so, but to the extent they have and bear no personal consequences for having done so, that contract does not exist for anyone.

          That is exactly why we should be cautious about letting our elites get away with breaking laws. It takes only a generation or so of the citizenry understanding -or even only perceiving- that the contract no long exists for the elites for it to cease existing in reality, for everyone.

  • SedonaConnect

    I recommend everyone follow Malum in Se laws and to ignore an Malum Prohibitum laws that they feel interfere with their living the life they desire.

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  • cjsmall

    Good article, but I would like to quibble with one statement:

    “If I own my property, why should I have to pay taxes to the government
    on it’s private use when I already pay property taxes to that same
    government?”

    I get your point, but why state it this way. One type of tax is not contingent upon another — the property tax is immoral in principle and should always be identified as such. The following statement would have been accurate and principled:

    “If I own my property, why should I have to pay taxes to the government.”

    • you can make the case that there are network effects from paying some collective taxes for things like water, sewage, police etc. The problem becomes when those entities become flooded by cronyism.

      • cjsmall

        I understand, but I don’t see any justification for placing government in charge of water, sewer, parks, libraries, charity, etc. And while I do think that there needs to be a single authority for establishing an objective body of law and overseeing its implementation, I would even suggest that the police could be an entirely private enterprise without direct government involvement.

        If individual rights, including property rights, are properly defined and implemented, then there are no conflicts that arise in any of these area that necessitate or justify government involvement. Only when force or fraud is initiated should government become involved in setting laws or administering justice.

        Taxes are extracted by the initiation of force and thereby invalidate the very purpose for which government was established.

  • Fritz
  • TexasDude

    Cool, so, since some folks have more money than me, it is just if I kill them and steal their property?
    Why not? We must defy unjust laws no matter what? Right?

    • ubik

      Huh?
      Don’t think you read the article.

  • Kirtane Chiron

    Nothing’s perfect, but we can do our best to make it better. I’d rather live in a world where I can choose what I want to do, when, and how. Antiquated regulations that stifle progress are simply meant to do that, stifle progress and the inevitable shift of power from centralized gatekeepers to all parties involved. Giving people the opportunity to maximize their potential via decentralized marketplaces (ideally on a distributed ledger) isn’t evil, it’s empowering. It’s not easy, but I support founders and investors everywhere who are working to build a great world via great tech. Thank you.

    • Nothing is perfect. But, I see a lot of people that have an almost biblical devotion to government regulations and faith that government is acting in their best interests. That’s often NOT the case.

      • Kirtane Chiron

        Agreed!

  • The Founding Fathers had some notions about this. They incorporated them in a document called the Constitution of the United States. (Pay particular attention to the first clause of Article I, Section 8. Make sure to read every word.) But it’s really old, and in today’s happenin’ world, who pays attention to old stuff any more? You might as well pass your Friday evening reading birth certificates!

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  • The text does not differentiate between the laws banning things bad by itself, as stealing, killing etc.; in legal jargon: “malum in se” from the laws in legal jargon called “malum prohibitum,” what means it is declared bad because some people decided so. In that “malum prohibitum” category we find all the regulations intended to protect the public from potentially malicious behaviors of some. Those “malum prohibitum” regulations are paved with good intentions, but end up with accommodating those who can spend the most on lobbyists. Hence, most often they cause more bad than good.

    On the case of Uber, if I understand it correctly, the business model is in allowing some extra income for people who might have a nice car, but temporarily do not have an income supporting it. It grew so rapidly during the deepness of the recession. If someone wants to make a career out of it, he or she needs to drive a conventional taxi.

    • CruisingTroll

      If someone wants to make a career out of it, he or she needs to drive a conventional taxi. What is this “conventional taxi” of which you speak? The only thing that differentiates a “conventional taxi” from a common passenger vehicle is the signage, communications with dispatch, and meter. The signage you can get at any sign shop, and the smartphone provides the latter two. Oh, there’s one more difference. The massive gov’t regulation, aka malum prohibitum on how you go about travelling and who you can or can not have in your car.

      I find myself somewhat confused why you recommend that someone “needs” to get tangled up in that web. Such a perspective seems to be at odds with your first paragraph.

      • There is some perverseness in my argument. Obviously, Uber thrives on the overregulation of the conventional taxi service. My point is twofold; if Uber wants to replace taxi service it has to become one; if conventional taxi service wants to survive, it needs to shed a lot of regulations.

  • teapartydoc

    Licensing DOES NOT make sense for doctors. Read chapter nine of Capitalism and Freedom by Milton Friedman.

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