Topic: Regulatory Studies

Egg Farming and the Salmonella Recall

The New York Times invited me to contribute to its “Room for Debate” feature on the big egg recall and here is an excerpt from my reply:

…Advocates cite the current outbreak, at last report limited to two related Iowa egg farms, as reason to enact pending legislation that would intensify federal regulation of food-making in the name of safety. Large food and agribusiness companies have generally signed off on most of the new proposals as acceptable. Many smaller producers, on the other hand, suspect there will be less room for them, and for local variety generally, in this reassuring new world of business and government cooperation.

I go on to cite the CPSIA debacle, in which a safety enactment devastated small producers of children’s goods while entrenching some of the dominant industry players.

Read the full New York Times post here. Some other perspectives worth checking out: Ronald Bailey, Ira Stoll, Ann Althouse.

Journalists Warn of Regulation’s Costs

All too often, news stories about proposed new regulations mention all the supposed benefits of the regulation while ignoring such potential costs as higher prices, reduced service, or even the demise of the business. Today I’m glad to see journalists noting those costs right up front in their discussions of a new regulation proposed by Virginia attorney general Ken Cuccinelli. Public radio WAMU says:

Currently there are 21 abortion clinics in Virginia. Abortion service providers say at least 17 of those might shut down if state officials use their authority to regulate those clinics.

Attorney General Ken Cuccinelli says abortion clinics provide many other medical services beyond abortions, so they’re subject to the same regulations as larger medical facilities.

That opinion was issued in response to a request from Virginia State Senator Ralph Smith, who says his only interest is to protect the health of the patient.

“I certainly feel that for the safety of all involved that they should be as regulated as other procedures,” says Smith.

For most clinics, meeting a higher regulatory standard could mean additional equipment or space renovation.

Tarina Keene director of NARAL Pro-choice Virginia says the cost involved could drive some clinics out of business.

Yes, indeed, they noted those potential costs right there in the first line. And so did the Washington Post, front page, third sentence:

Virginia Attorney General Ken Cuccinelli II has concluded that the state can impose stricter oversight over clinics that perform abortions, a move immediately decried by abortion-rights organizations and others as an attempt to circumvent the General Assembly, which has repeatedly rejected similar measures.

Cuccinelli’s legal opinion empowers the Board of Health, if it chooses, to require the clinics to meet hospital-type standards. Abortion-rights advocates say that could force some clinics to close because they would be unable to afford to meet the new requirements.

Now if only we could get journalists to take such prominent note of the costs that new regulations impose on other kinds of services, from lemonade stands to local restaurants to for-profit colleges to internet service providers.

Free Parking and the Geography of Cities

Unlike Randal O’Toole, I was delighted by Tyler Cowen’s New York Times article on the high cost of free parking. And indeed, if I’m reading O’Toole’s post right, it sounds like Cowen and O’Toole don’t actually disagree on the policy issue: both agree that business owners should be free to decide how much parking to supply.

The debate so far has focused on whether parking mandates push the price of parking below the market rate. But I think the more important effect is on the geography of cities. Parking mandates (and other regulations) preclude developers from catering to people who want to live in pedestrian-friendly neighborhoods.

Parking mandates necessarily mean that every large building is surrounded by a large parking lot. And for someone who doesn’t own a car, a parking lot is just a nuisance: a big, empty space he must walk across to get anywhere. Regulations that effectively require a parking lot around every store and restaurant almost guarantees that walking to them won’t be practical.

As Jane Jacobs pointed out, pedestrian traffic is highly sensitive to density. Even a modest reduction in the density of a neighborhood can have a big effect on pedestrian traffic. And as the number of pedestrians falls, so too will the number of businesses that cater to pedestrians. So it’s probably true, as O’Toole says, that charging for parking spaces wouldn’t dramatically reduce the amount of driving people do. But this is partly because the proliferation of parking lots has made walking impractical. Fewer free parking spaces wouldn’t just raise the price of car ownership; it would make car non-ownership more pleasant and convenient.

Government regulations often have subtle unintended consequences. Parking regulations have been on the books so long that the results have come to seem perfectly natural to us. But free markets are unpredictable. If developers had the freedom to decide how much parking to supply, the results might surprise us.

Paul Krugman on Carter and Reagan: Wrong Again

Measured in constant 2005 dollars, real federal revenues rose from $968.4 billion in 1970 to $1,197.6 billion in 1980 and to $1508.7 billion in 1990.   In other words, the cumulative real revenue gain was 23.7% under the high and rising tax rates of the 1970s, and 26% under the dramatic reduction in tax rates of the 1980s.

Paul Krugman recently looked at these same figures through his logarithmic Kaleidoscope, and concluded that “the revenue track under Reagan … is exactly what you would expect to see if supply-side economics were just plain wrong: revenues are permanently reduced relative to what they would otherwise have been.”

Financial Times columnist Martin Wolf was so awed by Krugman’s creative artwork that he imagined “the theory that cuts would pay for themselves has proved altogether wrong.”

Notice that Krugman starts his trend with 1970, which was a year of recession and falling revenue.  If he had instead measured real revenue growth between the cyclical peaks of 1969 and 1979, the overall increase would have dropped to 19.5%.  Note too that Krugman ends his trend with 1981 rather than 1980, while suggesting 1981 was part of the glorious Carter years:

The Carter years, contrary to legend, were not a period of economic stagnation and falling revenue because high tax rates were strangling the economy; there was a nasty recession starting in 1979, largely thanks to an oil shock, but overall growth was respectable.

The comment is strange.  There was no recession in 1979, nasty or otherwise.  And non-energy inflation topped 11 percent that year – before oil prices peaked in early 1980.

The continually accelerating inflation during the Carter years, 1977 to 1980, pushed more and more families into higher and higher tax brackets.  It also resulted in brutal taxation of illusory, nominal capital gains and ephemeral inventory profits.   As a percentage of GDP, federal taxes soared from 17.1% of GDP in 1976 to 19% in 1980 and 19.6% in 1981.   Does that really look like a sustainable trend that President Reagan interrupted for no good reason?

Social Science Friday


A few odds and ends from the social science blogosphere:

What Part of “Nonrepresentative” Don’t Profit-Haters Get?

For the last few days, for-profit colleges and universities have been suffering an even worse hammering than usual, both in the media and their pocketbooks. The proximate cause: a GAO report released Wednesday that has been portrayed as revealing “systemic” and “pervasive” fraud — and otherwise just seamy behavior — by the for-profit sector.

No doubt there is some bad stuff going on in proprietary postsecondary education. But the assault on for-profits reeks of political bullying of the unpopular kid — the kid who’s just different — as well as the never-ending Washington demonization of anyone who honestly pursues a profit. The waving of the bloody GAO report is case-in-point, and one need look no further than the following statement contained on the report’s very first page:

Results of the undercover tests and tuition comparisons cannot be projected to all for-profit colleges.

You mean, GAO investigators went to 15 non-randomly selected schools in six states and Washington, DC, and the results cannot be construed to be representative of the whole sector? And the GAO also, apparently, meant it when it wrote on page two of the report that “we investigated a nonrepresentative selection” of schools? But, then, how could Tom Harkin (D-IA), chair of the Senate Health, Education, Labor and Pensions Committee, have stated in a show-trial hearing that “GAO’s findings make it disturbingly clear that abuses in for-profit recruiting are not limited to a few rogue recruiters or even a few schools with lax oversight”?

Oh, right: Truth doesn’t matter to Harkin — only scoring political points. That not only explains how Harkin could say such a thing, but why he has targeted for-profits rather than seeking truth and purity in all sectors of higher education, including the coolest of the cool kids, public colleges. With dismal program completion rates of their own, and their imposition of huge burdens on taxpayers, you’d think they’d be worth some investigating, too.

I encourage you to read the GAO report, and you’ll see that it in no way supports a blanket condemnation of for-profit higher ed. And it’s not just because its findings can in no reasonable way be extrapolated to the whole of proprietary schooling. It’s also because many of the supposedly terrible things it discovers, while perhaps distasteful, are hardly abhorent, such as telling prospective students that they ”can” — not “will” — earn a lot of money in a profession even if that amount is well above the average. And then there’s the report’s worthless comparisons of tuition at for-profit and nearby public instituions. Once again: public colleges are heavily subsidized by taxpayers, so of course their tuition is lower. And these comparisons were also not randomly selected.

After you’ve read the GAO report, you should take in a new paper from the Center for College Affordability and Productivity, For-Profit Higher Education: Growth, Innovation and Regulation. It might be a bit too fond of the for-profit sector, which like all of higher education lives far too much off the sweat of taxpayers, but it furnishes lots of terrific data and insights about proprietary higher ed to balance out the ongoing truth-eschewing assaults the sector keeps on suffering.  

We Aren’t Exaggerating When We Rail Against Threats to Economic Liberty

Oregon officials told a 7-year-old with a lemonade stand that she needed to obtain a temporary restaurant license or incur a fine.

I’m rendered speechless, but Josh Blackman exploits the “teaching moment”:

If you are generally opposed to any notion of the right to pursue an honest living, ask yourself, why does it bother you so much that this little girl cannot sell lemonade. Then, ask yourself what you think about other regulations that stifle the entrepreneur. This story does not tug on our heart strings simply because she is adorably selling lemonade for 50 cents a cup (suggested price) at a fair. It tugs on our heart strings because the state is unnecessarily clamping down on this little girl’s ability to make some money.

More from Tim Sandefur.