Print
Our good friends at the Mercatus Center recently published another report on America’s morbidly obese regulatory code, which still contains over 100 million words despite President Trump’s attempt to “drain the swamp” with his Executive Order 13771.
The report correctly points out that “regulatory accumulation,” as the authors call it (a malady associated with Mancur Olson’s “economic sclerosis” for some of us old timers), hurts the poor most of all, a point that I make in my book about South Dakota’s long history of relatively high levels of entrepreneurship and light economic regulations. That means that much of the residue of increased income inequality left after proper adjustments by Phil Magness, Vincent Geloso, and others may be rooted more in increased regulation than in market forces. Wouldn’t that be truly ironic, unlike many of the lyrics in the Alanis Morissette song “Ironic”?
The Mercatus report also details two major policy reforms designed to reduce the number of old regulations and slow the introduction of new ones; a regulatory review commission like the military Base Realignment and Closure Commission created in the late 1980s and the implementation of some form of regulatory budgeting.
It concludes, however, that “unfortunately, reversing the growth of regulatory accumulation and avoiding a quick return to a massive regulatory code is not as easy as flipping a switch.”
Why not just flip a switch, though? I envision a law that would automatically cut the oldest 5 percent of the Code of Federal Regulations annually unless some agency proved that a regulation created a net economic benefit to the satisfaction of, say, a majority of 11 evaluators randomly pulled from a pool of 100 or 1,000 pre-qualified experts trained in such analyses. That would be a pricey procedure as such experts do not come cheap, but that is precisely the point!
Such a law would ensure that every regulation was scrutinized at least once every twenty years and automatically eliminate all those that no agency thought important enough to subject to review. As agencies are budget-constrained, they would be forced to prioritize to defend the regulations they really believe are beneficial and would have less incentive to create new regulations just for the sake of covering their backsides or justifying their own existence.
Some people seem to believe that the entire country would collapse without all those sacred words but of course they are wrong as many regulations are dead letters, while others impose costs with little or no corresponding benefit. The key is to identify those and get rid of them automatically, while creating incentives for regulators and the regulated to identify the potentially most beneficial regulations for objective analysis.
This is the sort of “plan” that presidential hopefuls should be thinking about because it aligns incentives with presumably widely shared goals, like efficient government. It also encourages innovation and aids the poor, not through humiliating disincentives to work, but by taking the government’s heavy regulatory jackboots off their necks.
Robert E. Wright
Related Articles – Regulation
Why Is the System Rigged?
It’s crazy season, that special time on the American calendar when aspiring candidates for the nation’s highest office try to outdo each other in an effort to attract more voters to their platforms. This time around, background support is provided by a virtual anvil chorus of anti-capitalism clatter. Senator Elizabeth Warren, for example, frequently unleashes criticism of American capitalism by asserting that the “system is rigged,” a complaint that seems to resonate with meaningful populist appeal. It’s an old refrain that has echoed across the years from Karl Marx onward.
Nobel Laureate Robert J. Shiller explains why this may be the case in his new book, “Narrative Economics.” As Shiller points out, when a story is repeated enough, the viral message may be accepted as conventional wisdom, more like an article of belief than a matter of reason.
I’ll also emphasize that for a message to prevail, it helps if its content rests on a preexisting and inherently moral foundation that reflects our tribal instincts as an evolved human species. And what works for a small tribe doesn’t necessarily work so well for a huge industrialized nation.
Consider this: Some may inquire, “Do you believe in capitalism?” almost as if the position one takes is a matter of religion. When answering, we reflect on our tribal preferences, and cooperating and sharing with our family and neighbors is often a key to success. Thus, many people will almost instinctively answer “no,” or at least “yes, but …” followed by some serious caveats and exceptions.
Yes, the beneficial-but-invisible hand of commerce driven by self-interest has never been an instinctually lovable idea. Gains from trade, while well-documented since the days of Adam Smith, can be more elusive than we may first realize. Given the widespread negative views on the subject, politicians’ calls for greater accountability and government intervention may not be welcomed by all, but they’re understandable.
Shiller adds another dimension to his narrative economics story by using data from Google’s Ngram Viewer. The viewer produces charts based on the frequency of particular words and phrases in Google Books, which include some 8 million downloaded volumes in various languages.
Consider an Ngram we might apply to Senator Warren’s comments. The nearby figure contains one for “system is rigged” that shows the frequency of the phrase’s occurrence from 1940 through 2008, the final year in the database. I have smoothed the data by using a three-year running average:
The data show four viral periods: 1940-1950, 1960-1985, 1990-1998, and 2000-2008. The first period encompasses World War II, a time of draft, rationing, price controls, defense contracting, and related cronyism that may in some cases have been highly profitable for hand-picked firms.
The second viral period is much longer and encompasses a period including the Vietnam War and related draft, Watergate and significant social unrest.
The third period includes the first Iraq war, and the fourth contains anti-capitalism protests and budding expressions of concern about income inequality as a version of the economy closer to what we know today took shape.
The Ngram suggests that in seeking to communicate to her base, Senator Warren artfully chose a phrase that had gone viral before—which is to suggest that there may be an embedded tribal norm that reacts during periods when a relatively small number of people are able to build large fortunes or avoid burdens, such as the draft, as a result of government actions and favors.
Oddly enough, Senator Warren and other capitalism critics seldom ask how the system got rigged and what might be done to undo the rigging. But of course, the rigging is done in Washington, sometimes when special interest groups—including corporations—lobby congress for favorable treatment.
And how might that be undone? By trimming away uneven regulation and adopting policies that expose all business firms to the refreshing winds of competition. Put another way, by forcing capitalists to act like capitalists and not lobbyists.
Bruce Yandle
Bruce Yandle is a distinguished adjunct fellow with the Mercatus Center at George Mason University and dean emeritus of the Clemson University College of Business and Behavioral Science.
Related Articles – Economic Education
Holiday Spending Off to a Modest Start
Retail sales and food-services spending increased 0.2 percent in November following a 0.4 percent gain in October. Excluding gasoline station sales, retail sales and food services were up 0.1 percent in November after a gain of 0.7 percent in October. Over the past year, total retail sales and food services were up 3.3 percent through November, while retail sales and food services excluding gas have increased 3.6 percent (see chart).
The November performance was mixed, with gains in 7 retail-spending categories, two posting declines and one essentially unchanged. Gains were led by a 0.8 percent increase for nonstore retailers (primarily online shopping), and a 0.7 percent rise for electronics and appliance stores – two traditional holiday spending categories. Gasoline stations also posted a 0.7 percent gain which is a surprise since average retail gasoline prices (which often drive monthly changes in retail sales spending) were actually down 2.0 percent. Also posting gains for the month were motor vehicles and parts (autos), up 0.5 percent, food and beverage stores, up 0.3 percent, home furnishings stores and general merchandise stores, each up 0.1 percent.
On the negative side, health and personal care stores saw sales fall 1.1 percent, clothing and accessories stores had a 0.6 percent fall, sporting-goods, hobby, musical-instruments, and book stores posted a 0.5 percent decline, miscellaneous retailers had a 0.4 percent setback, and food services (restaurants) saw a 0.3 percent fall. Building materials, and gardening supply store sales were essentially unchanged for the month.
The mediocre retail sales data for November suggest that the early predictions of a booming holiday spending season may have been premature. Certainly, consumer fundamentals are generally solid with a low unemployment rate, decent income growth, and positive consumer sentiment. Government data are subject to revisions and there is plenty of time for consumers to spend, but today’s data suggest slow growth remains the most likely path.
Robert Hughes
