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Abstracts |
Introduction
Regulatory Change over the past Quarter-Century
By William A. Niskanen
Federal regulation, for better or worse, has changed dramatically since 1977. Most of the older forms of economic regulation, some dating from the nineteenth century, have now been substantially reduced or eliminated -- including most of the industry-specific regulation of agriculture, communications, energy, finance, and transportation. That reduction has occurred through measures that Regulation magazine broadly supported. In most cases, the reduction has led to lower real prices, increased services, and broad popular support. The only significant current threat to continued deregulation is a consequence of the Enron collapse -- the threat of increasing regulation of accounting, corporate governance, and securities.
Transportation
Moving Ahead
By Thomas Gale Moore
A quarter-century ago, the federal government regulated the U.S. transportation system with a heavy hand. The Civil Aeronautics Board (CAB) controlled the airline industry: It supervised entry (mainly by prohibiting new carriers) and fixed rates (generally at whatever level the industry deemed necessary). Routes were strictly controlled and the CAB rarely permitted airlines to compete in new markets. In similar fashion, the Interstate Commerce Commission (ICC) kept its thumb on the motor carrier industry. As with the CAB and the airlines, the ICC kept trucking rates at levels requested by the industry, placed tight restrictions on routes, and barred new trucking or bus firms.
Today, government control of those sectors and the rail freight industry has been greatly relaxed. An increasing number of Americans are regular fliers, the motor carrier industry has grown at a remarkable rate, and rail freight rates have dropped dramatically. Indeed, it would be difficult to imagine the past two decades of economic growth without the dramatic improvement in transportation rates and service.
Banking & Finance
Banking Approaches the Modern Era
By Charles W. Calomiris
The past two decades have seen a radical transformation of regulations controlling the size, location, and activities of U.S. banks. Included in those changes are state-level reforms of branching barriers, relaxation of deposit interest rate ceilings, the passage of a nationwide bank-branching law in 1994, and the expansion of bank powers throughout the 1980s and 1990s. The reforms culminated in the passage of the Gramm-Leach-Bliley Act of 1999, which established financial holding companies -- an alternative to more limited bank holding companies -- as a platform for building the global, universal U.S. banks of the next generation.
Before 1980, banks mostly focused narrowly on deposit taking and lending in separate local markets. Now, U.S. banks operate on an unprecedented large scale, throughout the country and the world, and are able to marry traditional lending and deposit-taking activities with investment banking, private equity investing, asset management, insurance, and many other financial services.
Telecommunicatons
A Somewhat Better Connection
By Robert W. Crandall
In 1977, none of us owned a personal computer or a cellular telephone. That same year, state and federal regulators were trying to use the federal courts to block competition in telephone handsets and long-distance services. At the same time, AT&T was defending itself against monopolization charges brought by the U.S. Justice Department, despite the fact that its monopoly had been conceived, nurtured, and protected by the government itself.
Today, the very same regulatory commissions that were once working to protect AT&T's monopoly in long distance and telephone terminal equipment have been converted, at least rhetorically, into advocates for competition and consumer welfare. We have come a long way toward open markets in telecommunications – or have we?
Securities & Investment
A Growing Market
By Craig Pirrong
Securities regulators' record in increasing the competitiveness of securities markets over the last 25 years is a mixed one. The elimination of fixed commissions was a major victory for competition, as was the reform of NASDAQ. In other areas, however, the SEC did not take aggressive action to increase competition in the securities markets.
From its genesis with the passage of the Grain Futures Act in 1922, regulation of derivatives markets was relatively static until the 1980s. The regulatory framework did not change in any fundamental way during that period. Since the late-1980s, however, the dramatic pace of innovation in derivatives markets has resulted in a major restructuring of derivatives regulation. In 2000, Congress passed the Commodity Futures Modernization Act (CFMA). The act exempted most "over-the-counter" (OTC) transactions from the exchange-trading requirement and some other provisions of the Commodities and Exchange Act, permitted the creation of clearing mechanisms for OTC derivatives, and also exempted certain centralized trading platforms from certain regulations.
Hostile takeovers are an important element of the market for corporate control. Although there are instances in which hostile takeovers likely were motivated (at least in part) by the possibility of extracting wealth from bondholders and employees, most hostile acquisitions were aimed at firms whose management was not acting in shareholders' best interests. As a result, the serious constraints imposed upon hostile acquisition in the 1980s likely favored professional managers at the expense of their shareholders.
Public Land
Western Myths and Realities
By Robert H. Nelson
In just a quarter-century, the demand for decentralization of federal land management activities has spread from a small group of perceived radicals to major leaders of the West's political establishment. The broadening call represents a major break with the model of public land management that prevailed through most of the twentieth century. It reflects a wide disillusionment with the U.S. Forest Service and Bureau of Land Management (BLM) -- the two main public land agencies. Over the past decade, countless researchers have documented the failings of public land management -- its inefficiency, gridlock, continuing capture by special interests, and inability to plan effectively.
Energy
Lessons Learned and Forgotten
By Richard L. Gordon
As of the spring of 2002, U.S. energy policy stood in fairly good state as compared to the heavy command-and-control policies that dominated the twentieth century. The largest and worst government interventions in the energy markets were eliminated in the 1980s, though many misguided programs of micromanagement remained.
Unfortunately, the state of the energy markets will deteriorate in the coming years following congressional passage of a revised version of President George W. Bush's energy plan. The plan, and Congress's changes to it, underscores the persistence of the flawed belief that energy markets are somehow "unique" and require public intervention to operate efficiently. The Bush plan offers a bitter illustration of how much we learned, and have now forgotten, about energy and economics.
Health & Medicine
The Competitive Revolution
By H. E. Frech III
In the last 25 years, U.S. health care and health policy have evolved in surprising and fascinating ways. The main surprise was the competitive revolution in health care markets, stimulated by subtle, unrelated policy changes and the rapid growth of managed care. The grand health care reform plans, such as the health planning initiatives of the 1960s and the Clinton administration's attempt at national health insurance, turned out to be surprising failures.
The last five years have been characterized by growing state regulation of health insurance, particularly managed care. That is part of a general backlash supported by organized medicine, many politicians, and the news media against the competitive revolution. Future developments may include expanded federal regulation (the "Patient's Bill of Rights") and physician collusion.
Insurance
Repairing Insurance Markets
By Scott E. Harrington
The past quarter-century witnessed a slow and non-monotonic deregulation of the insurance industry. That has included the substantial deregulation of property/liability insurance rates and policy forms (i.e., contract terms and language) for "large" commercial buyers in approximately 20 states since 1998. However, rate regulation persists in many states, despite overwhelming evidence of abundant market competition and the counter-productive effects of rate regulation as practiced in some states. Representatives of certain segments of both the property/casualty and life/health/annuity sectors are now pressing for optional federal chartering and regulation that they hope will free their companies from the shackles of outmoded state regulation.
Housing
The Fall and Rise of Public Housing
By Michael A. Stegman
If new spending is a reasonable measure of the country's priorities, then few areas of domestic national policy have experienced as dramatic a decline in favor over the past 25 years as low-income housing. That is especially true of programs administered by the Department of Housing and Urban Development, which underwent profound change between the time Jimmy Carter entered the White House in 1977 and when Bill Clinton left in 2001.
Ironically, housing's long-term fall from grace has set the stage for a remarkable comeback by one low-income program that fiscal conservatives love to hate: public housing. What is more, the comeback is being led by what, historically, has been branded one of the most dysfunctional public housing authorities in the country: the Chicago Housing Authority.
The War of the We Against the Me
By P. J. O'Rourke
Ed Crane told me to be upbeat tonight. Everything's going great. We're a successful think tank. We've got a big building. We get quoted in the newspapers. And when we get quoted, the newspapers hardly ever refer to us anymore as the "nutty Ayn Rand disciples who want dope and machine guns legalized."
So I'm supposed to be upbeat. No. Upbeat is for sissy do-gooder organizations like Brookings, the U.N., and the Democratic Party. Cato is not a do-gooder organization. We're libertarians. We're not here to do good. We're here to do anything we damn well please -- and take the consequences -- because we are real advocates of freedom.
Regulation, 2002, Vol. 25, No. 2. Published four times a year by the Cato Institute. Please send changes of address and subscription correspondence to: Circulation Department, Regulation, 1000 Massachusetts Ave., N.W., Washington, D.C. 20001, or call 202-842-0200. Subscribe to Regulation online.