Friday, July 1, 2011

The Accumulation of Regulations

In the Summer 2011 issue of Regulation magazine, Bruce Yandle offers some bracing concerns about the federal regulatory process in "Forty Years on the Regulatory Commons." Here is a sampling:

"Inspired by statutes directing action, our 60-plus federal regulatory agencies are somewhat like sheep with legislative guiding shepherds grazing on a regulatory commons, a resource space where there are no systematic limits on the number of rules that can be produced, the time required to read and abide by them, or the economic resources consumed in meeting the rules. Fed by growing budgets and expanded duties, the regulators write more rules. While budgets, congressional directives, executive orders, and benevolent forbearance partially constrain the commons, there is always room for one more bite by the sheep, one more regulation. ..."

"What is it like on the regulatory commons? When one puts on a pair of externality-visualizing glasses, one sees endless opportunities opportunities to internalize external costs and maybe even render the world Pareto safe. Whether it be dealing with lead paint, mandatory inspection of catfish, energy efficiency for refrigerators and furnaces, minimum standards for drivers licenses, diesel engine emissions, advertising over-the-counter drugs, marketing practices of funeral homes, or ridding the market of noisy Hickory Dickory Dock pounding toys, the world is full of unhappy and dangerous situations that need fixing. But with externality glasses, it is much easier to see the flaws than to determine if all people taken together are made better off after the regulatory repairs are in place. And who has time to check? ..."

"Years ago, when regulation was young, before we had published those 2.5 million pages of rules, economists spoke knowingly in tones of certainty about market failure and intervention to correct difficulties from such problems as market power, information asymmetries, failed institutions, and unspecified property rights. We spoke as though government and regulation were exogenous to the market process, that on occasions regulators would open a window, examine features of the economy, make some efficiency enhancing
adjustments, and then quickly close the window to leave the economy to operate in a more glorious way. Indeed, we used the word “intervention” and we referred sometimes to Michael Lantz’s 1937 FTC statuary metaphor where a powerful free market horse is being bridled by a benevolent plowman who
presumably serves the public interest."

"But as regulatory windows opened and closed daily and agencies pumped out more rules, firms and industries became intertwined with government. Government was no longer exogenous to the behavior of firms in the marketplace; government became endogenous. While major regulations may have reduced some perceived market failure, they also cartelized industries and reduced competition. The strong horses and other special interests came seeking the plowman."

Via a post by Arnold Kling at EconLog