January 24, 2011

Advice for the Young Regulator

Justin Katz

Kevin Williamson churns out the economic heresies when he defines "social value" as "the stuff society actually values" and "profits" as "evidence of the creation of social value." Much of modern discourse is a debate over semantics, but choose the words as you wish, the underlying economic principles remain the same, and Williamson is entirely correct to explain the perversity of heavy government regulation as follows (addressed as if to the newly appointed regulator):

You can see the problem: You want to regulate because you do not trust competition among firms to serve the public interest. But regulation becomes just one more arena for . . . competition among firms. Round and round we go: Instead of competing to sell people the tastiest hamburgers at the lowest price, or competing to hire the most productive Teutonically efficient burger-slingers at the most efficient wage, companies compete in the field of regulatory-compliance efficiency, which does not shovel any greasy social value into anybody’s ravening public-interest maw at all. The weird thing is that the more you regulate, the more McDonald's will discover that its most important profit-controlling variables are only tangentially related to selling people hamburgers. The clown finds out that Jack in the Box got himself a waiver from Obamacare, and now he wants one for the Hamburglar and Grimace, and we're right back to the original competition among firms that you didn't trust in the first place, but with a perverse twist: Instead of competing to provide social value in the marketplace, firms compete to wring profit out of politics.

And that, if we extend Williamson's logic outward, introduces competition among politicians to make promises to powerful parties, so that they can define social value in such a way that the firms will support their campaigns and arrange for special deals and lucrative gigs when the political career runs its course, not only for the politicians, but also for the regulators and the people whom they hire to come up with the rules.

So, the rules pile up, creating unnecessary, unproductive jobs navigating them, drawing profits and wages away from people who create things that society actually values, rather than people whose main occupation is trying to convince others that they're acting in the interest of "social value." Moreover, the rules become a minefield limiting the ability of new firms to arise and compete with the big boys, who therefore can get away with much more of the objectionable activity (devaluing labor and the rights of the community) that much regulation is broadly meant to curb.

But here's the thing: Betamax and the Arch Deluxe and Clairol's Touch of Yogurt Shampoo (seriously, that existed) just get yanked off the shelves when hordes of people don't buy them, and the great big milling laboratory of the marketplace tells Joe Businessman, who is really a research scientist seeking social value, to shelve that particular hypothesis and maybe not expect a bonus this year. But there's no feedback mechanism like that in government, which means that when you do stupid, you do immortally stupid. You might find yourself asking why Alabama has a law against having an ice-cream cone in your back pocket at any time or chaining your alligator to a fire hydrant. (What was the precipitating episode there, Bubba?) You get Americans in the 21st century still paying the temporary emergency telephone tax to fund the Spanish–American War (1897–98). On and on it goes. Forever. Deathless stupidity tends to accrete and clog up the system, over time, and Washington is a factory whose workers produce deathless stupidity like it's their job, like they're getting paid for it. Because it is. Because they are.
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For various reasons, I have had reason to keep an eye on the Code of Massachusets Regulatoins (CMR).

I may not have my numbers exactly right, but I am not far off. In 1975, the CMR was contained in 3 volumes. IIRC, it is currently 27 volumes.

It is little understood that legislative bodies have the power to create "agencies". These agencies are empowered to "promulgate regulations". Technically, there is legislative oversight. However, the legislators tend to think that "the experts know what they are doing" and oversight is rarely exercised. This also gives the legislators "plausible deniability", i.e. "That IRS, DEP, ATF has a mind of its own, we can't get a grip on it". Gingrich once suggested that Congress be required to spend one, or two, days per month correcting truly agregious regulations. What can be done, will be done. Regulators do not need to face election.

I have less reason to keep an eye on the Code of Federal Regulations (CFR). However, I have seen them on library shelves. The "volume growth" has been even more startling.

Posted by: Warrington Faust at January 24, 2011 7:28 AM

If the "temporary emergency telephone tax" seems hard to bear, consider that Massachusetts has a "luxury tax" on suits over $100. Or, a "luxury meals tax" on "meals" over $1.00, I have paid that on an ice cream cone.

These were all invented as "soak the rich" taxes.

Posted by: Warrington Faust at January 24, 2011 7:34 AM
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