The regulation fallacy

Don’t look now, but while you and I were in shock, SHOCK I tell you, over the latest Trump/Russia allegations, Trump has been quietly doing actual things to our country. Depending on the side of the aisle you sit on, you may or may not like them. I’m speaking, of course, about deregulation, and the Trump administration is on a tear.

President Trump Signs Executive Order In Oval Office

Now, let me be the first to say that regulation is often bad, and should be used as a last resort when competition either fails or forbids ethical practices. And deregulation can be a boon. The airline industry is much better for consumers now than before deregulation.

But the problem is threefold. 1st, the regulations they’re going after are not “job killers” as they claim to be. In fact, it’s hard to get a republican on record with exactly what regulations they oppose because then their vague statements about killing jobs all the sudden have a very real face on them. 2nd, the regulations that actually need addressing are not the one he’s looking into, they’re just wish lists from big corporations. And 3rd, the broad-sword approach Trump is using isn’t the way to make that work anyway.

The Trump administration’s position is typical of right wing politi-babble: “I think it’s something that’s just been lost on people in terms of the regulatory sediment that has built up — decade after decade after decade in many of these areas,” administration member Bremberg said in a telephone interview. “You’re talking about legislation that was either passed at the beginning of the last century or somewhere in the middle of the last century, amended a couple times here and there, but whose statutory structure has largely stayed the same. Yet the regulatory structure has just layered — layer after layer after layer on a seemingly constant basis.”

Yes, when have regulations ever been removed or improved? Except for by nearly every president. Ok, sure, maybe we could do more to be efficient, but this is not what we’re talking about here. Politico has a great rundown on the regulations that Trump is trying to axe (or already has). Most of them are pesky little regulations. A little mercury in the drinking water here. A little farm worker safety there. But their stated goal is much bigger than that. They want to take down the entire regulatory infrastructure.

The right is, of course, indignant about the cost of regulations on our economy. From the right wing Heritage Foundation:

bg-red-tape-rising-2016-chart-3-825

Again, it’s easy to point fingers at amorphous “Departments” and high dollar regulations, but it fails to factor in benefits as well. Here’s a list of billion dollar regulations from the anti-regulation US Chamber of Commerce. A few things stand out:

First, 20 of the 34 billion dollar regulations are with the EPA and an additional 7 are with the Department of Transportation. You would think after watching millions of affluent Chinese people flee the pollution in their country that would not try to emulate the “free market” of polluting however much you want. The rest of the 34 are basically energy efficiency regs and financial industry regs.

Second, the EPA regulations have a 7 to 1 Benefit to Cost ratio. In fact, only three of these standards are either net positive benefit or basically tied. One is for fuel additives. The other two are the CAFE standards: the fuel efficiency requirements for new cars. These two “net negative” standards actually save the consumer money over the life of the car compared to the cost of implementing them, not to mention we have a little less need to go fight wars for oil in the middle east.

Similarly, the non-EPA regs have a 2 to 1 benefit to cost ratio. Sure, it “costs” credit card companies money if they can’t raise your rates for no reason, but then again, that money comes from somewhere. Calling it a “cost” depends on your perspective, and clearly outfits like the US Chamber and Heritage see it from the side of big businesses.

Ok, so I’ve laid out my liberal plan for regulating the hell out of us. Nobody will assume I’m anything other than a Michael Moore supporter. But believe it or not, I actually see myself as fairly anti-regulation. Hell, living in California will teach you to hate that quickly enough. Did you know I can’t buy a 30 foot telescoping pole for photography because it’s banned in California? A moot point with drones everywhere now, but CA won’t let you buy one. They’re afraid you’ll get it in electrical wires.  You need a license and a background check to wipe your kids nose around here.

These things add up on an economy.  And they’re all well-intentioned. But too many liberals see a societal ill and say “we need to ban that.” So here’s my 3 step guide for when to regulate something.

  1. When there is a lack of competition forcing companies to act in the interests of consumers or the country, then regulation is required. To me, the net neutrality issue jumps to the surface as a great example of this. If you had your choice of lots of different internet providers, you would not choose the one that slows your YouTube or Netflix speed. Competition would normally prevent this kind of behavior. But because ISP’s are often monopolies, and even when they’re not, are severely limited in choice, they can get away with it. The lack of competition prevents them from doing the right thing. And yes, I do mean “prevents them” because no CEO of a publicly traded company is going to last a week if he’s leaving obvious profits on the table. It’s not an option.
  2.  Related  the last point, sometimes that last bit about CEO’s having to pursue the highest profit strategy requires you act against the interests of consumer or the country, precisely because your competition is doing it. There are certain things that we would not think competition will not allow. Take raising credit card rates even if you haven’t paid late. Now, you would think in a highly competitive cards market, that people would not want those cards. But because a) those things are hidden in the fine print written above a grad school level and b) people don’t think it will happen to them, then it became so pervasive that you almost couldn’t find a credit card without this “feature.” At some point, trying to either get rid of that, or prevent adoption of such practices would get even a successful CEO fired. When doing the right thing is prevented by the competitive landscape, then regulation is required.
  3. When enough injustice and harm has been done. Let’s be straightforward. We don’t have to solve every social ill. Not every wrong has to be righted. At what level does something have to rise before its worth saddling a company or industry with red tape.

A few areas where I think we could use some regulatory reform? Well, for starters, let’s focus less on strict written detailed rules, and more on guiding direction that’s actually backed up with enforcement. Other countries do this and the compliance costs are easier. Sure, it leaves room for interpretation and litigation, but the important regulations are already settled in court. Second, we need to look at regulations that prevent labor force flexibility, and prevent innovation. Lots of financial regulations fit this bill, as would many medical ones.

But of course, this is an academic exercise anyway. Republicans don’t actually want less regulation, they just want to hide corporate favors behind the “free market” mantra. Perhaps I’ll address that fallacy next time.

 

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