03 Jul Government Regulation*
Is government regulation good for America … or bad for America?
The answer, of course, is that sometimes it’s good and sometimes it’s bad.
How can you tell the difference?
The goal of regulation is to both ensure public safety and create a clearly-defined set of operational standards for businesses and consumers that will improve conditions for both without over-burdening the private sector or diverting public resources from essential government services and operations (e.g., enforcing the Rule of Law, democratic governance, defense). Everyone wants their government to ensure their air and water quality, their motorways, public health, and commerce. Everyone wants their government to be fair in taxation, racial and religious relations, and law enforcement. Regulation is intended to further those goals.
At the extremes, distinguishing good regulation from bad is easy. For example, the requirement that food producers provide “good-by”/”consume by” dates on meats, fish and other perishables is a good idea. It doesn’t require government oversight … or the creation of a trailing bureaucracy –, doesn’t create costly overhead for producers, and can be policed by private citizens who are harmed by mis-datings. This public-oversight-and-enforcement approach previously was an integral component of government regulation, which over time evolved to depend more-and-more on government oversight, participation and enforcement. The initial reliance on the good sense of the public owed its origins to the Common Law principle of caveat emptor – let the buyer beware – a concept that over the past 100 years gradually lost favor with governments, most often leading to the adoption of a more paternalistic approach. During the 20th Century, a creeping faith in the ability of governments to do a better job led to the conclusion that governments should be assigned the task of addressing and solving a broad range of problems … that the invisible hand of capitalism embodied in caveat emptor was too burdensome on the public and created unnecessary losers. Although it certainly is true that there are a good many losers when the invisible hand is left on its own, government regulation hasn’t been quite the panacea that had been hoped for … and there are good reasons why this is so.
The potentially perverse effects of government regulation are illustrated by Federal regulations dealing with sugar and peanut production, each with its complementary price supports and import restrictions. Their origins date back to protectionist tariff barriers first imposed on sugar in 1789 … when sugar was an important American product in an agriculturally-driven economy. Similarly bad are vegetable and fruit volume controls that are vestiges of the Great Depression. Both reveal the most harmful aspect of regulation – that once it starts, it attracts a committed constituency … and rarely generates sufficiently strong opposition to limit its continuation. This is often referred to as regulatory capture … and comes in many guises. Unnecessary and inefficient regulation frequently is self-perpetuating. Insiders, those financially benefited by the regulation, political influence-peddlers, and existing bureaucrats conspire separately and together to further the existing regulatory regime and to add to it. Politicians are loath to antagonize either constituents or contributors who continue regulatorily feeding at the trough. The losers are the public, especially those who don’t have the economic clout … a group that always includes the poor and vulnerable, those in greatest need of protection and economic support.
There is no disagreement that the proper way to vet a new regulation is by economic analysis. Regulations that fail a cost-benefit analysis aren’t adopted. Government agencies in the 21st Century in fact are required to analyze and quantify a regulation’s anticipated costs and benefits for precisely this purpose. Americans therefore might suppose that all regulations on the books today necessarily pass the cost-benefit test. They would be wrong. Not only aren’t existing regulations subjected to the same level of economic analysis, the economics often used … unsurprisingly … are outcome-selective.
Economic analysis is not a pristine, disinterested scientific exercise. It’s riddled with subjectivity and, all too often, suffers from bad carefully-crafted inadequate economics.
All regulations create costs for affected businesses. Those costs generally are passed on to consumers (at least in part) as higher prices or fewer products or services and act as a tax on the activity (and sometimes also result in squeezing wages and/or limiting job opportunities). They also frequently create a government need for additional bureaucrats employees to draft and/or oversee the regulatory framework, requiring further government revenues and/or budget reallocations. By definition, there is some level of price distortion/resource misallocation in all regulations, as well as invisible effects that more often than not lead to unforeseen consequences. These cumulative costs must be weighed against the benefits – social, economic, political, perceptual, etc. – in what amounts to an unscientific exercise that necessarily requires a subjective weighing.
The analysis, such as it is, becomes unfathomable at higher orders of complexity. Consider, for example, the Volcker Rule, which prohibits banks from engaging in certain investment activities that are at the time of its enactment were judged unacceptably risky to the financial system. It should not be surprising that, although the Volcker Rule may have reduced that bank risk, it has had far-reaching and adverse consequences for America’s financial competitiveness industry and moved those financial risks to other parts of the national and global economy. Regulation can go only so far. It’s like the proverbial Dutch boy plugging one hole in the dike, but unable thereafter to plug other holes that appear.
Governments are not, and cannot be expected to be, omnipotent. Government oversight and control at some point results in an undesirable Big Brother society. The reality is that the invisible hand deserves a reboot … and the U.S. government should empanel independent economists and business leaders to undertake a comprehensive reassessment of America’s existing regulatory regimes … and needs.
July 4th – Independence Day in America (from a good friend)
Finally (from a good friend)
A father buys a lie detector robot that slaps people when they lie. He decides to test it out at dinner one night.
The father asks his son what he did that afternoon.
The son says, “I did some schoolwork.”
The robot slaps the son.
The son says, “Ok, Ok. I was at a friend’s house watching movies.”
Dad asks, “What movie did you watch?”
The robot slaps the son.
Son says, “Ok, Ok, we were watching porn.”
Dad says, “What? At your age I didn’t even know what porn was.”
The robot slaps the father.
Mom laughs and says, “Well, he certainly is your son.”
The robot slaps the mother.
Robot for sale….
*┬® Copyright 2019 by William Natbony. All rights reserved.