In matters related to the economy, government departments have a long history of imposing economic regulations on providers of products and services, for the purpose of achieving a potentially noble objective over the short term, but then achieving the exact opposite result over the long term. To take one example, private companies at one time owned and operated viable passenger transportation systems that carried people both within and between cities. During the latter part of the 19th century, several private companies owned and operated elevated railway networks that carried passengers within New York City.
However, toward the end of the 19th century, municipal officials in New York chose to build a rival passenger transportation system. So began the construction of the electrically powered New York City subway system based on precedent from London and on very recent developments in electrical propulsion. The resulting competition forced the overhead railway companies to sell their assets at greatly reduced prices.
During the late 19th and early 20th centuries, privately owned city transportation systems replaced horse-drawn vehicles with electric streetcars that could carry greater numbers of passengers within a city at greater speed and lower cost. Private electric power companies owned the majority of the viable private electric transportation systems, until a federal official cited them for having violated antitrust statutes, classifying the electric transit subsidiaries as “captive customers” and requiring the power companies to divest themselves of their transit subsidiaries. So began the decline of electrically powered transit across North America.
The Rise of the Automobile
During the late 19th and early to mid-20th centuries, viable passenger trains carried customers between cities until state authorities embarked on a program of building highways and freeways that increased the customer base for automobile manufacturers. The result was the decline of viable, privately owned passenger transportation systems that provided service within municipalities and between them. While the government program showed merit over the short term, roads became congested with traffic over the longer term, and exhaust from car engines escalated to the point of becoming a concern for people’s health.
In the United States, government authorities responded by requiring automobile manufacturers to clean up tailpipe emissions from car exhausts, as state authorities continued to build new highways and expand older highways to cope with increased traffic congestion. As automobile registrations increased, state authorities responded by enforcing more stringent standards for exhaust emissions. But emissions standards applied only to new cars, while in a state such as California, weather conditions allowed owners to keep their cars for many years. To ensure exhaust emissions standards for older vehicles, California began a program of mandatory testing for older vehicles.
The emissions tests were conducted by securing a vehicle on rollers and running the vehicle under a simulated load. In response, many competing companies began offering products that customers could add into their vehicle fuel tanks or install on to their engines to improve readings during exhaust emissions tests. In the unregulated buyer-beware free market, some products worked while others were useless.
Government officials responded by scrapping the roller-based test for newer vehicles, opting instead to read the vehicles’ diagnostic computers, the realm of high-tech and computer enthusiasts and hobbyists. During onboard computer access emissions testing, computers reported that diesel-powered Volkswagen cars operated with extraordinarily clean exhaust emissions. Or rather, that is what the onboard computers revealed to the government computers.
New Market Opportunities
The history of government regulations that apply to the economy has repeatedly shown that such regulations often create new opportunities in the underground economy. During the early 20th century, alcohol prohibition created new opportunity for the discreet manufacture, import and distribution of alcoholic beverages. Government emissions testing of automotive exhaust created a new market for products to temporarily improve emissions readings.
Government officials are aware of computer hackers and computer hobbyists who are able to write code to create special computer applications. So automobiles built by other manufacturers will go to emissions testing facilities to have their onboard computers read, but it is unlikely that any of the people doing the readings would be able to distinguish whether the information being downloaded is genuine or whether it had been generated by an external computer.
Governments built roads and expanded the road network to help create a market for automobile manufacturers, only to discover that road networks in major cities became congested as vehicle exhaust emissions increased dramatically and adversely affected local air quality. Governments then imposed exhaust emissions standards, but innovative citizens soon discovered numerous ways to temporarily achieve clean exhaust emissions during emissions testing. As usual, one government intervention begets another, with market participants responding in predictably unpredictable ways.
* Harry Valentine is a free-marketeer living in Eastern Ontario.