Tag: regulation

Can Regulation Keep Up with Accumulating Knowledge?

What some doctors say about regulating the treatment of sepsis has much broader application. Sepsis, an often lethal reaction to infection sometimes called blood poisoning, is the leading cause of death in hospitals, Richard Harris reports for NPR. Understandably, then, some doctors and regulators have a typical reaction: “A 4-year-old regulation in New York state compels doctors and hospitals to follow a certain protocol, involving a big dose of antibiotics and intravenous fluids.”

Other doctors aren’t so sure about the rush to regulation. 

Dr. Jeremy Kahn at the University of Pittsburgh believes that regulations can prod doctors to follow the latest protocol. But “The downside is that a regulatory approach lacks flexibility. It essentially is saying we can take a one-size-fits-all approach to treating a complex disease like sepsis.” Harris continues:

That’s problematic, because doctors haven’t found the best way to treat this condition. The scientific evidence is evolving rapidly, Kahn says. “Almost every day another study is released that shows what we thought to be best practice might not be best practice.”

Kahn wrote a commentary about the rapid changes earlier this month for the New England Journal of Medicine.

For a while, medical practice guidelines distributed to doctors called on them to use one particular drug to treat sepsis. It turned out that drug did more harm than good. Another heavily promoted strategy, called goal-directed therapy, also turned out to be ineffective.

These are concerns that economists often raise about regulation: that government mandates may be rigid, inflexible, and frozen in time. They don’t change easily in response to new information. They may require a specific protocol that may turn out not to be the best practice:

And a study presented last week at the American Thoracic Society and published electronically in the New England Journal of Medicine finds that one of the steps required in New York may not be beneficial, either.

The regulations call for a rapid and substantial infusion of intravenous fluids, but that didn’t improve survival in New York state hospitals….

In fact, some doctors believe that most patients are better off without this aggressive fluid treatment. There’s a study getting underway to answer that question. Dr. Nathan Shapiro at Harvard’s Beth Israel Deaconess Medical Center hopes to enlist more than 2,000 patients at about 50 hospitals to answer this life-or-death question.

But that study will take years, and in the meantime doctors have to make a judgment call.

“It is possible that at present they are requiring hospitals to adopt protocols for fluid resuscitation that might not be entirely appropriate,” Kahn says.

Somehow this reminds me of the phenomenon noted in the 1980s when Canada banned cyclamates and the United States banned saccharin. Presumably one country had banned the less dangerous sugar substitute.

Economists Gerald P. O’Driscoll Jr. and Lee Hoskins wrote about the problems with regulatory mandates in 2006:

Coercion may bring uniformity of product or conduct, but only at the expense of innovation and flexibility. Merchant law suffered when the hand of the state took it over: “Many of the desirable characteristics of the Law Merchant in England had been lost by the nineteenth century, including its universal character, its flexibility and dynamic ability to grow, its informality and speed, and its reliance on commercial custom and practice” (Benson 1989: 178).

Markets excel in adapting to changing circumstances, while legislation and government regulation are notoriously rigid. That is perhaps the strongest case for market self-regulation over government-mandated regulation.

Regulation seems to substitute the judgment of a small group of fallible politicians or bureaucrats for the results of a market process that coordinates the needs and preferences of millions of people. It sets up static, backward-looking rules that can never deal with changing circumstances as well as voluntary decisions by people on the ground, whether entrepreneurs, customers, scientists, or doctors.

Court Says Regulation of In-State, Noncommercial Activity Is Valid Regulation of Interstate Commerce. Somehow.

Once again, a court has refused to recognize any meaningful limit to Congress’s authority to regulate Americans’ private lives through the Commerce Clause. On Wednesday, after a long delay in considering the case, the U.S. Court of Appeals for the Tenth Circuit reversed a district court order that had declared the U.S. Fish and Wildlife Service (FWS)’s regulations prohibiting the “taking” of the Utah prairie dog (effectively, anything that may disrupt its habitat) unconstitutional. (This is a case in which Cato had filed a brief nearly two years ago.)

The court held that, since Congress had a rational basis to believe that protecting the prairie dog “constituted an essential part of a comprehensive regulatory scheme that, in the aggregate, substantially affects interstate commerce,” the FWS regulations are authorized under Article I, section 8. This, despite acknowledging that “taking” the prairie dogs—which exist solely within the borders of Utah and have no economic value—is a “noncommercial, purely intrastate activity.”

Dire Fears of Trump Deregulation

Four decades ago, the United States began a dramatic change in domestic policy, repealing swaths of economic regulation and abolishing whole agencies charged with managing sectors of the U.S. economy.

 

If you mention this “deregulation” today, most people think it refers to wild Reagan administration efforts to undo environmental, health, and safety protections. In fact, the deregulation movement predated Ronald Reagan’s presidency, had broad bipartisan support, and had little to do with health, safety, or environmental policy. Rather, deregulation targeted regulations that directed business operations in different sectors of the American economy: which airlines could service which routes, what railroads could charge what amounts for their services, how telephone service would be billed and what technologies would be used, how the power industry was organized, and much more.

 

For decades, policy researchers had compiled evidence that those regulations harmed consumers and stunted economic growth by suppressing competition and innovation. With America mired in the stagflation of the 1970s, policymakers decided to stop sheltering (some) U.S. businesses from the demands of consumers and the competition of upstart and foreign rivals.

 

That policy change now seems obviously virtuous, but at the time some commentators predicted it would unleash mayhem and disaster: a crippled economy, spiraling prices, “ruinous” competition, frightened consumers, plane crashes, hobbled communications, and other horribles. Fortunately, those frightful predictions did not obstruct reform. Today, the 1970s–1990s deregulations are broadly recognized as having yielded great benefits to consumers and contributed to the two decades of American prosperity that ended the 20th century. (For more on deregulation, see the spring issue of Regulation, celebrating the magazine’s 40th anniversary.)

 

Which brings us to current criticisms of Trump administration efforts to launch a new wave of deregulation. Like yesteryear, the critics are predicting mayhem and disaster. But their arguments aren’t convincing.

 

Consider, for instance, Northwestern University law professor Andrew Koppelman’s warning that “Trump’s ‘Libertarianism’ Endangers the Public.” (Credit Koppelman for using scare quotes to indicate that President Trump isn’t a libertarian.) Specifically, he worries about Trump’s recent order on regulation, which instructs agencies to (temporarily) keep the nation’s aggregate cost of regulatory compliance at its current level and to repeal two regulations for every new one adopted.

President Trump’s “One-in, Two-out” Rule: Lessons from the UK

Monday saw President Trump force through another executive order - “Reducing Regulation and Controlling Regulatory Costs. The headline was the introduction of a new “one-in, two-out” rule for new regulations:

for every one new regulation issued, at least two prior regulations be identified for elimination, and that the cost of planned regulations be prudently managed and controlled through a budgeting process.

Anything that can be done to focus regulators’ minds on the costs imposed on private businesses and groups of new regulation is probably, on net, positive. But the UK has had a policy like this since 2005, first adopting a “‘one-in, one-out” rule, then a “one-in, two-out” rule and now a “one-in, three-out” variant. The results are widely acknowledged to be mixed. Here are 4 lessons from the UK the Trump administration should bear in mind.

1. Focus on costs, not counting regulations

What really matters is not the number of regulations but the costs imposed on private businesses and civil society organizations. A “numbers” approach could be gamed: a department could introduce a new regulation, and remove a defunct one, while imposing new business costs. Thankfully, both the UK government and Trump’s executive order now recognize this. Section 2, part c) of the order says:

any new incremental costs associated with new regulations shall, to the extent permitted by law, be offset by the elimination of existing costs associated with at least two prior regulations

In the UK though, “one-in, one-out” eventually meant that for every new regulation introduced with a net cost to business, regulations up to an equivalent net cost would be eliminated. It would be better named a “pound-for-pound” rule. When upgraded to “one-in, two-out” every new regulation with net costs to business had to be compensated for by regulatory removal or revision at double the monetary cost of the new regulation. And so on. Whether badly drafted or otherwise, Trump’s version reads more like the “one-in, one-out” rule on cost, albeit having to find the cost compensation across two regulations. If implemented in this way, it could become messy to implement for many agencies. Judging regulation by pure cost rather than numbers, as the UK has done, would be a stronger constraint.

2.  Judge by net costs rather than gross costs

Any new measure, whether regulatory or deregulatory, will generate some costs to private businesses and civil society. If Trump is serious about deregulation, it therefore makes much more sense to assess “net” costs, rather than “gross” costs as a target for the new rule. This was recognized in Britain which now carries out the net cost methodology. Otherwise perverse incentives are created: departments or agencies will be cautious about ever proposing deregulatory measures where benefits to business exceed new costs, because they would still have to find gross cost savings elsewhere. As Stuart Benjamin outlines, steps taken to make pipeline construction easier, for example, otherwise might end up delayed as the agency scrambles around finding existing regulations with gross costs to remove to compensate for the very small costs of a deregulating measure. This might seem an obvious point, but at the moment the order is ambiguous – simply stating that the Director of the OMB will provide guidance “for standardizing the measurement and estimation of regulatory costs.”

Washington DC Progressives Fight to Preserve Gas Stations

The number of gas stations in the United States has fallen by nearly 30 percent in the last two decade and the DC government says it is determined to arrest that decline, at least in this jurisdiction. Why it feels this way is a complete mystery, and that it has taken action on this front is absurd.

It is easy to surmise why we have fewer gas stations: more stringent regulations on underground gas tanks increased the cost of operating a station and spurred many operators to close their doors in the late 1990s. Also, many gas station operators these days see selling gas as primarily a way to attract a lot of shoppers to their store and are willing to cut their margin to the bone to get those ancillary sales. As a result, the average fuel sales (and non-fuel sales) of gas stations has been growing steadily. The days of a mom and pop station selling gas, fixing cars, and selling a little candy by the cashier are long gone.

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Money Laundering Laws: Ineffective and Expensive

Beginning in the 1970s and 1980s, the federal government (as well as other governments around the world) began to adopt policies based on the idea that crime could be reduced if you somehow could make it very difficult for criminals to use the money they illegally obtain. So we now have a bunch of laws and regulations that require financial institutions to spy on their customers in hopes that this will inhibit money laundering.

But while the underlying theory may sound reasonable, such laws in practice have been a failure. There’s no evidence that these laws, which impose heavy costs on business and consumers, have produced a reduction in criminal activity.

Instead, the only tangible result seems to be more power for government and reduced access to financial services for poor people.

And now we have even more evidence that these laws don’t make sense. In a thorough study for the Heritage Foundation, David Burton and Norbert Michel put a price tag on the ridiculous laws, regulations, and mandates that are ostensibly designed to make it hard for crooks to launder cash, but in practice simply undermine legitimate commerce and make it hard for poor people to use banks.

Oh, and these rules also are inconsistent with a free society. Here are the principles they say should guide the discussion.

The United States Constitution’s Bill of Rights, particularly the Fourth, Fifth, and Ninth Amendments, together with structural federalism and separation of powers protections, is designed to…protect…individual rights. The current financial regulatory framework is inconsistent with these principles. …Financial privacy can allow people to protect their life savings when a government tries to confiscate its citizens’ wealth, whether for political, ethnic, religious, or “merely” economic reasons. Businesses need to protect their private financial information, intellectual property, and trade secrets from competitors in order to remain profitable. Financial privacy is of deep and abiding importance to freedom, and many governments have shown themselves willing to routinely abuse private financial information.

And here are the key findings about America’s current regulatory morass, which violates the above principles.

The current U.S. framework is overly complex and burdensome… Reform efforts also need to focus on costs versus benefits. The current framework, particularly the anti-money laundering (AML) rules, is clearly not cost-effective. As demonstrated below, the AML regime costs an estimated $4.8 billion to $8 billion annually. Yet, this AML system results in fewer than 700 convictions annually, a proportion of which are simply additional counts against persons charged with other predicate crimes. Thus, each conviction costs approximately $7 million, potentially much more.

By the way, the authors note that their calculations represent “a significant underestimate of the actual burden” because they didn’t include foregone economic activity, higher consumer prices for financial services, lower returns for shareholders of financial institutions, higher financial expenses for unbanked individuals, and other direct and indirect costs.

And what are the offsetting benefits? Can all these costs be justified?

Another Lesson from Bastiat: So-Called Employment Protection Legislation Is Bad News for Workers

Frederic Bastiat, the great French economist (yes, such creatures used to exist) from the 1800s, famously observed that a good economist always considers both the “seen” and “unseen” consequences of any action.

A sloppy economist looks at the recipients of government programs and declares that the economy will be stimulated by this additional money that is easily seen, whereas a good economist recognizes that the government can’t redistribute money without doing unseen damage by first taxing or borrowing it from the private sector.

A sloppy economist looks at bailouts and declares that the economy will be stronger because the inefficient firms that stay in business are easily seen, whereas a good economist recognizes that such policies imposes considerable unseen damage by promoting moral hazard and undermining the efficient allocation of labor and capital.

We now have another example to add to our list. Many European nations have “social protection” laws that are designed to shield people from the supposed harshness of capitalism. And part of this approach is so-called Employment Protection Legislation, which ostensibly protects workers by, for instance, making layoffs very difficult.

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