regulations

A Message for Trump: Basel IV Will Kill Dreams of an Infrastructure Boom

Ever since the Financial Crisis, regulators have tightened their grip on banking activities (read: beaten up on banks) without taking note of unintended consequences. Prominent amongst these misguided regulatory interventions have been the Bank for International Settlements (BIS) mandates, which are touted as promoting global financial safety and economic stability.

Obama’s Housing Toolkit: A Mixed Bag

Something striking happened last week: the Obama White House released its Housing Development Toolkit and Obama’s economic advisor, Jason Furman, wrote a follow-on op-ed about land use regulation’s negative consequences. While White House reports tend to be geared toward partisan political objectives, these two publications could have been written by non-partisan economists. Nevertheless, although the honest application of economic theory is welcome, libertarians will still find points of disagreement.

What’s good? The report highlights zoning policies’ influence on increasing housing prices, immobilizing workers in job deserts, creating costly uncertainty for developers, increasing inequality and racial segregation, and suppressing economic growth. These negative outcomes were attributed to “excessive barriers,” “unnecessarily slow permitting processes,” and “arbitrary or antiquated” zoning and land use regulations.

The White House even went so far as to say that “even well-intentioned land use policies” can have negative impacts. So far, so good.

What’s bad? The worst part of the report is the declaration that the President’s 2017 HUD budget includes a $300 million proposal for grants to help cities “modernize their housing regulatory approaches.” Since when does it cost $300 million to reduce regulation, which is all the “modernizing” that needs to be done?

Food Labeling Regulations Are Bad for Your Health

Besides offering unrealistic tax reform plans, most of the presidential candidates this year made some nod to regulatory reform in their 2016 campaigns. For the most part these involve some sort of wholesale examination of the rules currently in place to determine which can be safely jettisoned to save consumers and businesses billions of dollars. 

Such regulatory reform is counterproductive, though: As Sam Batkins and I point out in a forthcoming piece in Regulation magazine, once companies have spent what is necessary to comply with the new regulations-regardless of whether or not it is cost effective–there’s little to be gained from repealing it. 

However there is one regulation which, if repealed, would enormously improve the well-being of consumers at very little cost to business: the current food labeling rules. 

America’s Economic Problem Is Regulation, not Trade

Even when Donald Trump seems to get something right, he’s mostly wrong. At least when it comes to economics.

Many Americans are suffering financially. Yet the problem is not trade: Americans have grown wealthy as a trading nation. In contrast, regulation has done much to harm U.S. competitiveness.

The Obama administration is busy writing new rules to turn America into its vision of a good society, irrespective of the impact on liberty or prosperity. Last year Uncle Sam spent $62 billion to run the rest of our lives.

Regulating School Choice: The Debate Continues

Last week, the Cato Institute held a policy forum on school choice regulations. Two of our panelists, Dr. Patrick Wolf and Dr. Douglas Harris, were part of a team that authored one of the recent studies finding that Louisiana’s voucher program had a negative impact on participating students’ test scores. Why that was the case – especially given the nearly unanimously positive previous findings – was the main topic of our discussion. Wolf and I argued that there is reason to believe that the voucher program’s regulations might have played a role in causing the negative results, while Harris and Michael Petrilli of the Fordham Institute pointed to other factors. 

The debate continued after the forum, including a blog post in which Harris raises four “problems” with my arguments. I respond to his criticisms below.

The Infamous Education Productivity Chart

Problem #1: Trying to discredit traditional public schools by placing test score trends and expenditure changes on one graph. These graphs have been floating around for years. They purport to show that spending has increased much faster than expenditures [sic], but it’s obvious that these comparisons make no sense. The two things are on different scales. Bedrick tried to solve this problem by putting everything in percentage terms, but this only gives the appearance of a common scale, not the reality. You simply can’t talk about test scores in terms of percentage changes.

The more reasonable question is this: Have we gotten as much from this spending as we could have? This one we can actually answer and I think libertarians and I would probably agree: No, we could be doing much better than we are with current spending. But let’s be clear about what we can and cannot say with these data.

Harris offers a reasonable objection to the late, great Andrew Coulson’s infamous chart (shown below). Coulson already addressed critics of his chart at length, but Harris is correct that the test scores and expenditures do not really have a common scale. That said, the most important test of a visual representation of data is whether the story it tells is accurate. In this case, it is, as even Harris seems to agree. Adjusted for inflation, spending per pupil in public schools has nearly tripled in the last four decades while the performance of 17-year-olds on the NAEP has been flat. 

U.S. Education Spending and Productivity

Producing a similar chart with data from the scores of younger students on the NAEP would be misleading because the scale would mask their improvement. But for 17-year-olds, whose performance has been flat on the NAEP and the SAT, the story the chart tells is accurate.

How TTIP Will Affect the Structure of Global Trade Policy

Swedish economist Fredrik Erixon, an authority on international trade policy, who heads up the Brussels-based think tank known as ECIPE (the European Centre for International Political Economy), was a big contributor to the discussions held this week in conjunction with Cato’s TTIP conference.  Among many other trade topics, Fredrik has written extensively on TTIP, the WTO, and how the former may impact the latter.

Rules versus Discretion: Insights from Behavioral Economics

For half a century now, the “rules versus discretion” debate in monetary economics has focused on the so-called “time inconsistency” problem.  The problem is that, although a discretionary central bank might promise not to allow the inflation rate to rise above zero (or some other ideal value), the fact that an inflation “surprise” can boost employment and output in the short run will tempt it to break its promise.  Realizing this, market participants will anticipate higher inflation.  The long-run result is a higher inflation rate with no improvement in either employment or output.  By limiting the central bankers’ options, a monetary rule solves the time inconsistency problem.

An earlier rules-versus-discretion debate had taken place in the 1920s and 1930s.1  The later one, which was inspired by the stagflation of the 1970s, differed in that it was influenced by the New Classical revolution that was taking place around the same time.  Consequently, the later critics of monetary discretion, including Finn Kydland and Edward Prescott,  Guillermo Calvo, Benn McCallum, Robert Barro and David Gordon, and John Taylor,2 differed from their predecessors by building their arguments on the premise that central bankers were both well (if not quite perfectly) informed and well intentioned.  Discretion, according to them, leads to less than ideal outcomes not because central bankers are ignorant or misguided, but because of misaligned incentives.

Life In One D.C. Suburb: “Town Has Become Farcically Overregulated”

Discontent at a land-use control process perceived as “condescending and obnoxious” helped fuel a surprise voter revolt in affluent Chevy Chase, Md., just across the D.C. border in Montgomery County, reports Bill Turque at the Washington Post. Aside from intensive review of requests to expand a deck or convert a screened-in porch to year-round space, there are the many tree battles:

No Time for Mercantilist Posturing in Transatlantic Trade Talks

Pitched as a cure for Europe’s woes, salvation for the multilateral trading system, and the last best chance to restrain the Chinese juggernaut, the stakes are high for the upcoming Transatlantic Trade and Investment Partnership (TTIP) negotiations. Of course the primary objective of the TTIP is to reduce nagging impediments to commerce between the United States and the European Union. But success is far from a sure bet.

Given the numerous bilateral trade frictions that have eluded resolution for many years, the goal of a “comprehensive” agreement by the end of 2014 – the current target – is simply not credible. Success would require negotiators to lay down their calculators and spreadsheets, disavow the “exports good, imports bad” mantra of mercantilist doctrine on which they were raised, and act on behalf of their citizens instead of their domestic producer lobbies.

That outcome would be too good to be true, but there may be a certain genius to the tight timeframe: it will demand that negotiators forego excessive posturing and will limit the potential for ever-shifting political calculations to subvert progress. Regardless, success can only take the form of a less comprehensive agreement or, perhaps, a two-phased agreement where the first phase meets the 2014 deadline by achieving accord on relatively agreeable matters, while the tougher issues are relegated to a later train.

A recent paper co-published by the Atlantic Council and the Bertelsmann Foundation presented the results of a survey of American and European trade policy experts about the prospects for a successful TTIP agreement. More than half thought the negotiations would produce a “moderate agreement,” and most thought the agreement would take effect by the end of 2015 or 2016.

SEC vs. Goldman Sachs: Legislation by Demonization

The Obama administration thinks it has discovered the perfect formula to cram legislation through in a hurry:  Demonize some prominent firm within an industry you plan to redesign, and then pass a law that has nothing to do with the accusation against the demonized firm.  They did this with health insurance and now they’re trying it with finance.

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