Topic: Regulatory Studies

The Surreptitious Socialism of the Strong

George Will despairs that we already have a good bit of the socialism that John McCain warned about in the waning moments of his decade-long quest for Rooseveltian power. That is, we already have a lot of government redistribution of wealth, though we have almost no overt advocacy of socialism:  ”This is partly because Americans are an aspirational, not an envious, people. It is also because the socialism we do have is the surreptitious socialism of the strong, e.g., sugar producers represented by their Washington hirelings.”

Rent-seeking, economists call it–using the government to get privileges, such as a grant, a subsidy, a tariff, or a restriction on one’s competition. It’s one of those things we free-marketers rail against all the time, in papers on free trade, corporate welfare, government spending, and virtually every other activity of the modern state. More broadly, we point out, as Will did, that it’s impossible to have nonpolitical allocation of trillions of dollars of taxpayers’ money handed out by government. If you don’t want the powerful to lobby and manipulate in order to get their share of the money, then leave it in the marketplace. If you put it in the hands of politicians, expect political allocation.

Responding to Will, Christopher Orr at the New Republic says, “insofar as there are two kinds of spreading the wealth around, ‘rent-seeking’ (which we can all agree is bad) and ‘socialism’ (which Will implicitly concedes is less bad), conservatives are relatively more friendly to the former and liberals are relatively more friendly to the latter.” Hmmm. Is that so? I suppose if you think of the Bush administration as “conservatives,” then you have a good case. And Orr may be too young to remember actual conservatives back in the days B.G.W.B.

But I’m not. And I recall, for instance, the first program that Democrats rallied around when the Reaganites stormed ashore in 1981 with their pitchforks and meat cleavers in hand. Nexis confirms that a day after the administration made a broad budget-cutting proposal, these words led page A1 of the Washington Post: “The entire Democratic leadership in the House joined yesterday in warning the Reagan administration to keep its budget-cutting hands off the synthetic fuels subsidy program Congress created last year.” Democrats love corporate welfare, and even liberal intellectuals are far less critical of it than are libertarians and free-market conservatives.

And it’s not just corporate welfare. All the elements of the liberal interventionist state are both product and generator of rent-seeking. You can say that rent-seeking is an unfortunately inevitable by-product of having the government do good. But to want a $3 trillion federal government with vast regulatory powers that isn’t awash in rent-seeking is, as Milton Friedman wrote, like saying “I would like to have a cat, provided it barked.” Cats meow, and government money flows to those with political power.

Cato Today

Op-Ed: “Will the GOP Learn from This?” by Michael Tanner in the Orange County Register

As it emerges from the electoral rubble, the Republican Party must decide what it actually believes in before beginning rebuilding its battered fortune.

Michael Tanner on the election landslide

Republicans now have two more years in the wilderness to decide whether or not they actually stand for limited government and individual liberty. One wonders, whether they will hear the message.

Article: “Advice to President-elect Obama,” by Will Wilkinson in Marketplace

Here’s my advice: First, you’ve got to get spending under control….Second, drop the xenophobic claptrap….Third, get real on the ‘new energy economy.’

Op-Ed: “Is It Constitutional?” by Richard Rahn in the Washington Times

Which section of the U.S. Constitution gives the federal government the power to bail out banks? If you don’t know, it could be because no constitutional authority exists for such an action. It is all too common for both Congress and the executive branch to ignore that the Constitution limits what they can and cannot do.

Op-Ed: “US Urged to Overhaul Nuclear Arsenal,” by David Isenberg in the Asia Times

The handling of US nuclear weapons and policy were recently center-stage due to two different events. First was the release on October 24 of a report billed as a nuclear weapons roadmap for the future by the US Air Force. Titled “Reinvigorating the Air Force Nuclear Enterprise”, it called for the establishment of a global strike command and a headquarters for air force staff to handle nuclear assets.

The ‘Business Case of the Century’

On Monday, the Supreme Court will hear the case of Wyeth v. Levine, which the U.S. Chamber of Commerce has called the “business case of the century.” A Vermont woman who had to have an arm amputated after a nausea drug was improperly administered sued the drug’s manufacturer, Wyeth (she also sued the clinic, physician, and physician’s assistant, but these parties settled). She won in state court, and Wyeth sought review in the U.S. Supreme Court under the theory of “preemption” — that states cannot regulate (by statute or common law) in fields, like pharmaceuticals, where the federal government already does. Here the FDA had approved Wyeth’s label, but Wyeth did not change that label to conform to Vermont’s particular (and stronger) laws.

I don’t know whether this is the “business” case of the century, but it may well be that for the pharmaceutical industry. The outcome turns on a close reading of the statute — as Dan Troy and Becky Wood detailed in the most recent Cato Supreme Court Review, the Court is much more likely to endorse “explicit” rather than “implicit” preemption — but everyone (especially patients) will be better off if the Court upholds FDA preemption here. The courts should not be micro-managing what goes on labels or we will end up with the “overwarning” problems that defeat the labels’ purpose. Moreover, litigation is a blunt regulatory instrument that tends to skew the FDA’s already warped incentives to give too much weight to rare side-effects at the cost of prohibiting or suppressing useful drugs. These incentives, and the related litigation costs, ultimately affect the development of new drugs.

Bush’s Midnight Regulations?

The lead story in today’s Washington Post — above the economy, above the election — is a warning that the Bush administration may deregulate something before it leaves office. Here’s the online headline and subhead:

White House Makes a Last Push to Deregulate

New regulations, which would weaken rules aimed at protecting consumers and environment, could be difficult for next president to undo.

The story begins:

The White House is working to enact a wide array of federal regulations, many of which would weaken government rules aimed at protecting consumers and the environment, before President Bush leaves office in January.

The new rules would be among the most controversial deregulatory steps of the Bush era and could be difficult for his successor to undo. Some would ease or lift constraints on private industry….

Once such rules take effect, they typically can be undone only through a laborious new regulatory proceeding, including lengthy periods of public comment, drafting and mandated reanalysis.

OK, that’s news. A fair story. Although of course the reporter quotes no economist critical of regulation — just a couple of White House flacks and a business lobbyist — though he does quote at least three pro-regulation “public interest” activists issuing dire warnings of impending doom.

But I was curious: Did the Post run a prominent story a few days before the 2000 election about the Clinton administration’s push to impose sweeping regulations before they left office? You know the answer: of course they didn’t. Before election day, according to a Nexis search, there was one reference at the tail end of the jump of a Post story in the Business section to the Mercatus Center’s Midnight Regulations website. So they knew about the problem — Mercatus was publicizing it, and the Houston Chronicle ran a front-page story — but the Post didn’t think voters needed to know.

Even though, as today’s story mentions after the jump,

[T]he last-minute rush appears to involve fewer regulations than Bush’s predecessor, Bill Clinton, approved at the end of his tenure. …

“Through the end of the Clinton administration, we were working like crazy to get as many regulations out as possible,” said Donald R. Arbuckle, who retired in 2006 after 25 years as an OMB official.

Maybe they didn’t quite grasp the problem back in 2000. We’ll see whether there are such stories toward the end of the Obama administration in the Post — and on Diane Rehm, and on ABC News, and in the New York Daily News, and all the other places that are very concerned about “midnight deregulation.”

Cato Debates Potential Auto Industry Bailout on NPR.org

Cato Senior Fellow Daniel J. Mitchell participated in a debate yesterday on NPR.org that discussed the possible implications of a government bailout of the U.S. auto industry. Mitchell argued against it, and in the middle of the debate, NPR held an online poll that showed that 68 percent of listeners agreed with him.
Quotes from Daniel Mitchell pulled from the debate:

  • Consumers, acting in the marketplace, should determine which companies succeed or fail. Business success should not depend on which companies can hire the slickest lobbyists.
  • Every dollar the taxpayers send to Detroit will be one less dollar that will be available in the productive sector of the economy. This means fewer jobs in other industries, fewer jobs in the service sector, and fewer jobs in all other fields.
  • A federal bailout deprives other sectors of the economy of resources. Moreover, a bailout delays the much-needed restructuring of the US auto industry, much as handouts to the proverbial worthless brother-in-law enables him to continue sitting on the couch all day instead of putting his life back in order.
  • Foreign companies with plants in America are much more successful. It baffles me that politicians want to reward incompetence. Actually, it’s not that surprising. Detroit probably spends a lot more on lobbyists. Too bad they don’t put an equal amount of time and effort into improving their goods and services.
  • I don’t care if the bailout is profitable for government. The economic damage occurs because politicians interfere in the allocation of resources. Government intervention is a big reason why European welfare states grow slower, have higher unemployment, and lower living standards than America. We should not emulate nations such as France and Germany.
  • Five years ago, a merger of GM and Chrysler would probably be killed by the antitrust bureaucrats. Now the politicians want to subsidize the merger?!?
  • Bankruptcy almost surely will make consumers a bit more wary, but a bailout ensures that the auto companies won’t change the bad policies that got them in trouble. Better to restructure now. You don’t cure an alcoholic by giving him more to drink.

You can follow the entire debate here.

Does Harper Support Regulation of Gambling and Financial Services?

My post yesterday regarding Members of Congress who voted to exempt financial derivatives from state gambling laws created a firestorm of controversy. Well, two people asked me about it, anyway …

(A new WashingtonWatch.com post on the presidential candidates who didn’t help create our economic problems is available for your perusal, by the way.)

“Why would a libertarian think it’s bad to exempt anyone from regulation? Do you support gambling laws? Do you support financial services regulation?”

These are all fair questions, given my objection to preempting state gambling laws in this case. So let me expand on this observation from my earlier post:

Many gambling laws are nanny-statism, of course, but if they’re going to go away, they should be repealed by the legislatures that wrote them. This federal preemption gave special permission to certain parts of the financial services industry to run a huge gambling operation masquerading as a market in real assets.

I’m quite a bit less a fan of preemption than many of my colleagues. There are fair-minded people who believe that national markets call for national regulatory regimes to replace the states’. As commerce has become national, the Commerce Clause has become a grant of authority to regulate national markets, they appear to believe.

I’m not convinced. Given the nation’s experience under the Articles of Confederation, the Commerce Clause was included in the Constitution to prevent states from regulating parochially - that is, for the benefit of local interests over out-of-staters. The Constitution gave Congress authority to regulate commerce “among the states” - which, if words have meaning, is something narrower than just regulating all commerce.

So when state gambling laws interfere with an interest capturing the sympathy of a majority in Washington, D.C., that doesn’t necessarily empower Congress to withdraw state authority. Congress is supposed to prevent only state parochialism, not every bad idea coming out of a state legislature.

If we are to have a healthy political economy, debates about state gambling regulations should be taken to each state that enacted them. The merits of freedom and personal responsibility should be made clear there so they win majorities once again.

The alternative preferred by many is a shortcut: trumping states by moving power to the federal level. This is not a felicitous trend, and its end-point - a remote national government with plenary power - is not good for liberty.

Gambling regulation is nanny-statism, but I wouldn’t go and kick the legs out from under state anti-gambling regulation through federal preemption - especially not for one narrow part of the financial services industry. This is not a game, where any loss for regulation is a gain for liberty.

If responsibility for self-protection against gambling is going to be restored to people in a given state, the legislature of that state should repeal the anti-gambling laws, signaling people that they are once again responsible for themselves. What happened here was that Congress trumped state power and withdrew the protection of state anti-gambling regulation without signaling to anyone that there were risks to be encountered. What looked like asset-based financial services to all but a few was in fact gambling.

The Congress helped perpetrate a deception about what was going on with financial derivatives - and just because some regulation went under the tires, that isn’t a victory for liberty.

Deregulation and Inequality

Matt Yglesias has been doing some great blogging lately about the negative effects of certain kinds of government regulation on ordinary consumers:

The fact that Joe is not a licensed plumber would be a great opportunity for an enterprising politician to try to make an issue out of the growth of occupational licensing requirements in the United States and the barriers to economic growth and opportunity they create.

And occupational licensing is hardly the only such example. Lots of America’s land use and business licensing regulations are, likewise, measures that do much more to entrench existing privilege than to promote any kind of public interest…

The original wave of deregulation was promoted by conservatives, but also liberals like Ted Kennedy, Steven Breyer, and Ralph Nader. I think we see now that that wave went too far in some respects, but in other areas it hasn’t gone nearly far enough. This is a good cause for progressives to pick up, but also one that would be completely open for a conservatism that was interested in helping the little guy rather than mocking efforts to help him as the second coming of Josef Stalin.

Matt is getting some criticism from his mostly left-of-center readers for this, but he’s right. Even if you think some recent deregulation went too far (personally I think a lot of what was labeled “deregulation” in recent years wasn’t), the deregulation of the airline, trucking, and telecommunications industries in the 1970s was unambiguously good for consumers and economic growth. Liberals like Ted Kennedy and Stephen Breyer understood this and were key architects of the deregulation effort. A similar wave of deregulation at the local level could do a ton of good, and it would be a lot more likely to succeed if we had the same kind of ideological buy-in from the left-hand side of the spectrum.

I think there’s a related point here for libertarians: we’re often too quick to reject populist rhetoric and concerns about inequality. Certainly there are good reasons to be skeptical of proposals to redistribute income via the tax code. But there are also lots of ways in which government policies widen the gap between rich and poor. So when people express concerns about inequality, the most effective response is not to dismiss those concerns out of hand, but to turn the conversation to the many ways that bad government policies have increased inequality. Liberalization of occupational licensure, business licensing, and land use regulations, restrictions on eminent domain, school choice, and a reduction of corporate welfare are all policies that deregulate and reduce inequality. Libertarians and liberals ought to be natural allies on these populist, deregulatory issues, and such a coalition is more likely to emerge if libertarians take liberals’ concerns about inequality more seriously.