Biden’s Red-Tape Onslaught

Biden has pushed federal spending to record levels and he wants to push taxes to record levels.

He’s also maintained and extended Trump’s protectionist policies.

And we all know about his track record on inflation (he didn’t start the problem, but he did nothing to contain it).

Today, let’s ask what he’s done on regulation.

Unfortunately, the answer is “a lot.” Here’s a chart from American Action Forum, tracking how much new red tape was imposed by the past three president.

Biden is winning on costs and paperwork, which means the American economy is losing.

Here’s some of the accompanying analysis from AAF.

As we have already seen from executive orders and memos, the Biden Administration will surely provide plenty of contrasts with the Trump Administration on the regulatory front. …Since the AAF RegRodeo data extend back to 2005, it is possible to provide weekly updates on how the top-level trends of President Biden’s regulatory record track with those of his two most recent predecessors. …This past week’s regulatory haul has pushed the Biden Administration’s final rule cost tally into truly uncharted territory. …For perspective, if “Biden Administration Regulatory Costs” were a country, its gross domestic product would rank 17th in the world, just behind Indonesia.

Just like with taxes, the cost of red tape is borne by people.

By creating barriers to economic efficiency (what I call an obstacle course), Biden’s regulatory onslaught means that workers receive less income and investors receive lower returns.

The net effect is lower living standards.

For all intents and purposes, Biden wants to copy Europe’s regulatory policy just like he wants to copy Europe’s fiscal policy.

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Regulation Does Not Help Consumers

Sensible regulation requires cost-benefit analysis. In other words, do the positive effects of a government intervention outweigh the negative effects?

For instance, a nationwide, 5-miles-per-hour speed limit definitely would reduce traffic fatalities, but lawmakers fortunately don’t impose that kind of rule because it would be absurdly costly.

And since the scholarly research shows a clear link between health and wealth, it’s possible that some (supposedly) pro-safety regulations may wind up leading to a net loss of life.

Other regulations may not have that deadly effect, but they can still be bad news because they increase costs with no concomitant benefits.

For an example, let’s go back more than 20 years to look at an academic study on dentistry. The authors, Morris M. Kleiner and Robert T. Kudrle, found that red tape was not good news for consumers.

Here are some excerpts.

We have analyzed the impact of stricter occupational licensing requirements on economic outcomes, dental prices, and earnings using dental records of the consumers of these services. …we sketched a model linking regulation to the flow of new dentists as well as to quality and prices. …Alternative multivariate statistical models were used to test the impact of more restrictive licensing provisions, first on dental outcomes and then on the prices of dental service prices and practitioner earnings. …we are able to provide some evidence on how tougher dental regulation reduces the flow of dentists to the states over time. We also show that stricter regulation raises prices, but has no effect on untreated deterioration. …more stringent regulation does not appear to affect some indirect measures of service quality, such as lower malpractice premiums or fewer patient complaints. …Our multivariate estimates show that increased licensing restrictiveness did not improve dental health, but it did raise the prices of basic dental services. Further, using several tests for the robustness of our estimates, we found that the states with more restrictive standards provided no significantly greater benefits in terms of lower cost of untreated dental disease. Our estimates…show that more regulated states have somewhat higher dental prices. …Consequently, moving toward more restrictive policies that limit customer access to these services could reduce the welfare of consumers. …To the extent that states are considering a reduction in the pass rate on dental exams or making it more difficult for out of state practitioners to enter, our analysis suggests that there would be no gains to consumers in terms of overall dental health.

This flowchart from the study illustrates what the authors were trying to measure.

The bottom line is that we have yet another case study (for others, see here, here, here, here, here, here, here, here, here, and here) of red tape being bad news.

P.S. In recent decades, the U.S.A. has had two presidents (here and here) that pushed for less red tape.

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Bastiat and Credit Card Regulations

I have a three-part series on why price controls are misguided (here, here, and here). In this clip from a recent appearance on Vance Ginn’s Let People Prosper, I look at the specific example of price controls on late fees.

While I think my points are sound, I confess they are not original.

I’m simply recycling the wisdom of Frederic Bastiat, who succinctly and accurately explained way back in the 1800s that you can’t analyze an issue without considering the secondary effects (the “unseen”).

In this case, limiting late fees on credit cards will lead to negative effects in other areas.

I’m not the only one to make this point. The Wall Street Journal editorialized about this issue a few days ago. Here are some excerpts.

If Americans see their credit costs increase, access to credit decline, or card rewards disappear, blame the Administration’s new price controls. The Consumer Financial Protection Bureau (CFPB) last week finalized a rule effectively capping credit-card late fees at $8… Yet as even the CFPB acknowledges, the lower penalty may cause more borrowers to pay late, and as a result incur higher “interest charges, penalty rates, credit reporting, and the loss of a grace period.” This would make it harder to qualify for an auto loan or mortgage. The agency concedes that credit-card issuers may also raise interest rates, reduce rewards, “increase minimum payment amounts or adjust credit limits to reduce credit risk associated with consumers who make late payments.” Because some states cap credit-card interest rates, “some consumers’ access to credit could fall.” Thanks, Mr. President. By the way, the rule comes as credit-card delinquencies have risen to the highest level in more than a decade. …The Biden Administration is playing up its price controls as an election-year gambit, but it never explains the unseen effects down the road. The forgotten man always pays.

By the way, the editorial includes this bit of bad news caused by a different example of financial intervention.

Consumers are the biggest losers, as we’ve learned from other such price controls. The Durbin Amendment to Dodd-Frank directed the Fed to limit fees charged to retailers for debit-card processing. A 2017 Federal Reserve staff study found that as a result larger banks reduced free checking and raised minimum balance requirements. Small banks not subject to the cap also limited free checking because they faced less competition. Rather than lower prices, retailers pocketed the savings.

And I wrote earlier this year about another example of the Biden crowd imposing red tape on the financial services industry.

The bottom line is that more government is only the answer if you’ve asked a very strange question.

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Government Intervention and Relative Prices

I periodically share Mark Perry’s famous “Chart of the Century” to show that government intervention is a recipe for rising relative prices.*

Since economic principles don’t change when you cross national borders, one might expect to see similar patterns in other countries.

And we do. Here’s a chart from Matthew Lesh of the Institute for Economic Affairs in London. As you can see, overall inflation in the United Kingdom since 2000 has been 80 percent.

But prices have risen much faster in the sectors with lots of government intervention.

And prices have fallen, or risen at a slower-than-average pace, in the sectors where market forces dominate.

Here’s some of what he wrote to accompany the chart.

Prices have risen significantly faster than wages in the United Kingdom over recent years. The result has been a falling quality of life and significant hardship for tens of millions of households. Real household disposable incomes are now expected to be 3.5% lower in 2024-25 than their pre-pandemic levels… A useful starting point is considering which products have, and which have not, risen in price over recent years. …There have also been significant price increases in services and costs the government more directly controls, such as rail transport (+143%) – where the government sets around half the fares and heavily controls the sector – and council rates (+139%). …The products that have gone up most rapidly in cost include electricity (+425%), housing (+254%), and childcare (193%). Notably, these are sectors that have extensive state intervention through regulation and subsidies. …governments can and should change their approach to regulation. Cutting red tape in areas such as housing, energy, and financial services could reduce business costs and increase supply, resulting in lower costs for consumers.

This is spot on. As Ronald Reagan said more than 43 years ago, government is the problem.

And more government simply makes a bad situation even worse.

* Bad monetary policy is the recipe for overall increases in prices.

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Government’s War on Dishwashers

Bureaucrats must have a knee-jerk desire to make citizens miserable. That’s the most logical explanation for their various initiatives to lower our quality of life.

• Inferior light bulbs
• Substandard toilets
• Inadequate washing machines
• Dribbling showers
• Dysfunctional gas cans
• Crummy dishwashers
• The existence of gas stoves

Let’s focus on one of those examples today.

George Will has a new column in the Washington Post about the bureaucracy’s war against dishwashers that…well…actually clean dishes.

The Energy Department’s busy beavers, with their unsleeping search for reasons to boss us around for our own good, decided that dishwashers use too much water and energy… Responding to the Biden administration…, a slew of states sued the Energy Department… This dispute reached the U.S. Court of Appeals for the 5th Circuit, which, in its Jan. 8 ruling,swatted away what it tartly called the department’s “government-always-wins” argument…the court said, not only has the Energy Department acted in excess of statutory authority, but the record also contains “ample evidence” that the department’s new rules reduced efficiency in both energy and water use because “purportedly ‘energy efficient’ appliances do not work.” People “may use more energy and more water to preclean, reclean, or handwash their stuff before, after, or in lieu of using DOE-regulated appliances.” …DOE itself estimated in 2011 that handwashing consumes 350% more water and 140% more energy than machine washing.

The case involves the Biden Administration basically reversing some deregulation that took place during the Trump Administration.

The Wall Street Journal editorialized about this issue last year.

…the Energy Department dropped a sweeping proposal for “efficiency” mandates on dishwashers. Did you enjoy last night’s spaghetti, still crusted on the plate? Now you can taste it twice. …Americans have learned the hard way that stricter efficiency rules on already efficient appliances translate into higher costs, inconvenience, and ultimately waste. The Obama Administration’s dishwasher regulations raised the average price of a machine nearly $100, while producing a new norm of dirty forks and smelly glasses. …Machines can only meet much higher efficiency standards by recirculating water in longer cycles, meaning run times of two or three hours. Yet if the dishes aren’t clean, owners run them again, undermining the argument about conservation. The U.S. Energy Information Administration says that in 2020 nearly 20% of American households that owned a dishwasher never used it. That means they hand washed, which is as inefficient as it comes. The Biden …Energy Department plan gives manufacturers only until 2027 to produce the miracle of costlier washers that do a worse job.

This issue is ridiculous. I’m not sure what’s worse, the fact that bureaucrats are making our lives less pleasant, or that they’re making our lives less pleasant in a way that doesn’t actually save water or energy.

I’ll close on a related note. I was in Mexico City last week and was happily surprised at the quality of the hotel’s shower.

But then I realized that I was enjoying strong water pressure because Mexico presumably does not impose (or does not enforce) the stupid water-flow regulations we have in the United States.

This type of red tape is supposed to save water, but I wonder if that happens since you have to spend twice as long in the shower?

P.S. To its credit, the Trump Administration also tried to deregulation shower head regulations.

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Would More Government Intervention Make Flying Better or Worse?

There are plenty of problems, but this image reminds me that there are not necessarily government solutions.

Indeed, it is quite likely that government created the problems in the first place and that additional government intervention will simply make bad situations even worse.

For instance, I’m a frequent flyer, mostly for work but sometimes for more important reasons. So I’m very interested in three things:

1. Cheap flights
2. Convenient flights
3. Comfortable flights

But I’m very skeptical about the ability of government to deliver those goals. Let’s see what two columnists for the Washington Post recently wrote on this topic.

We’ll start with some excerpts from an article by Bina Venkataraman.

…flying is broken. …Little about the experience of modern flying is acceptable. …That’s where Ganesh Sitaraman, a professor at Vanderbilt University Law School…comes in. I cornered him on a recent evening while he was visiting D.C. to ask whether he really thinks there’s a way to end our misery — one that doesn’t just involve paying higher prices. His answer: …Ask more of the country’s airlines. The U.S. airline industry, Sitaraman points out, …is not being required by policymakers to deliver adequate service to the American public. …airlines should be forced to have consistent fares based on distances traveled, not based on when you book your ticket… Sitaraman also advocates disallowing any one airline from dominating a hub such as Dallas, Chicago or Atlanta… airlines should be required to return to the practice of honoring passengers’ tickets from other carriers’ flights when a cancellation or missed connection occurs… I largely agree…that air travel should be treated more as a public utility. …the FAA or Congress could set a minimum size for legroom in economy-class travel.

The big takeaway is that she thinks the market produces bad results and that politicians and bureaucrats would do a better job.

For a different perspective, here are some excerpts from Megan McArdle’s column about airlines.

Every argument about airline customer policy is essentially the same one: “I should be entitled to cheaper and more pleasant flights, and airlines should charge someone else more or make their flight less pleasant to give me what I deserve.” …Politicians are an exception, however. When they weigh in, the argument they’re making is “vote for me.” …Parents understandably…want a guarantee that their kids can sit with them. Unfortunately, the only way to offer such a guarantee would be to toss people without children out of seats they chose in advance, perhaps even paid for… Some might say…passengers shouldn’t have to pay to choose their seats. Fair enough — as long as you understand that the people who pay more for specific seats subsidize the folks who don’t. Stop the practice and the cost of the cheapest tickets will rise. …folks who instinctively feel that the ability to choose your seat or check a bag ought to be included with the price. But if airlines bundled all those things into one standard fare, that fare would be considerably higher than the budget fares the complainers are currently buying. …There is no way to make everyone, or even most people, better off. There is only the Hobbesian scramble for the inherently scarce resources that can be crammed into an aluminum tube flying 35,000 feet above the ground.

Megan also points out that airlines are one of the nation’s least-profitable industries, so it’s absurd to accuse them of successfully pillaging customers.

As explained above, they are simply trying to please consumers, who seem to value low prices over everything else.

The good news is that they are getting low prices thanks to airline deregulation enacted during the Carter Administration.

The bad news is that prices will go back up if Ms. Venkataraman and her allies succeed in pushing through more government control.

The bottom line is that there’s no such thing as a free lunch. There are only tradeoffs. That’s true when looking at the airline market, just like it’s true when looking at everything from the labor market to the nicotine market.

P.S. Ordinary consumers value low prices over conveniences. The main reason is that ordinary consumers are paying out of their own pockets. The people who complain the loudest about airlines are usually the people (such as politicians and journalists) who fly with other people (such as taxpayers and employers) paying for the tickets. For what it’s worth, I’m actually similar to politicians and journalists in that my flight costs rarely come out of my own pocket. But I nonetheless oppose government intervention because I’m not as dumb as Bernie Sanders.

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The Economic and Human Cost of Occupational Licensing

I wrote three columns about occupational licensing in 2017 (here, here, and here), but have since neglected the issue.

It’s time to revisit the issue, and we’ll start with this John Stossel video.

One of the reasons I’m writing about the issue is that the Archbridge Institute issued a report last year that ranked states based on the degree to which they required workers to get permissions slips from government in order to work.

The report was written by Noah Trudeau of Saint Francis University and Edward Timmons of West Virginia University, and it includes a very helpful map. Light blue states are the best and red states are the worst.

Here are some of the findings from their overview.

Occupational licensing affects more than 20 percent of workers in the United States. The extent of occupational licensing greatly differs across states. From both a research and public policy standpoint, it is important to have a comprehensive measure of occupational licensure across states and occupations. The purpose of the State Occupational Licensing Index (SOLI) is to help fill in this gap. The report contains four main sections: an introduction to the index, an overview of our methodology, a comparison to other database rankings, and state profiles for all 50 US states plus DC. …In 2023, the state with the highest occupational licensing burden is Arkansas (#1), followed by Texas (#2), Alabama (#3), Oklahoma (#4), and Washington (#5); the state with the lowest occupational licensing burden is Kansas (#51), preceded by Missouri (#50), Wyoming (#49), Indiana (#48), and Colorado (#47).

Congratulations to Kansas for having the most laissez-faire approach. Arkansas, by contrast, deserves scorn.

Why scorn for Arkansas? Let’s look at some additional analysis.

In 2018, Morris Kleiner and Evgeny Vorotnikov authored a study for the Institute for Justice about occupational licensing. Here are some of their results.

…licensing is frequently wasteful. In preventing people from working in the occupations for which they are best suited, licensing misallocates people’s human capital. In forcing people to fulfill burdensome licensing requirements that do not raise quality, licensing misallocates people’s human capital, money and time. And with its promise of economic returns over and above what can be had absent licensing, licensing encourages occupational practitioners and their occupational associations to invest resources in rent-seeking instead of more productive activity. Taking these misallocated resources into account, we find potential costs to the economy that far exceed those from deadweight losses…we find licensing costs the American economy $183.9 billion in misallocated resources… Assuming the 15 percent national returns, we find licensing costs the American economy $197.3 billion in misallocated resources.

That’s the economic cost to the country.

But don’t forget that hundreds of thousands of Americans lose employment opportunities because of their restrictive regulations.

So there is a substantial human cost as well.

Let’s close with a bit of good news. Veronique de Rugy wrote a few years ago that there are reform efforts.

The beauty of American federalism is that it allows states to try out different policies and see what works well and what does not. The state of Arizona is putting this flexibility to good use. After implementing a moratorium on occupational-licensing requirements in 2015, the state passed legislation to recognize occupational licenses from other states last year. Going against special-interest groups in various industries whose members would prefer to face as little competition as possible, Arizona is saying that it is open for all business and welcomes competition. As a result, Arizona is effectively launching a healthy competition for workers among the states themselves. …Faced in part with this competition from Arizona, other states are finally getting serious about reforming their own occupational-licensing requirements. …Shoshana Weissmann and Jarrett Dieterle write that many other states are following in Arizona’s footsteps, as evidenced by the fact that in 2020 alone “universal recognition bills are being pursued in Virginia, West Virginia, California, Ohio, Missouri, Georgia, New Hampshire, Indiana, and New Jersey.” …Let’s hope that all the states will follow Arizona’s lead and catch the reform bug so they, too, will free their workers, consumers, and economies from ridiculous licensing requirements.

And other states are catching up, as Veronique hoped.

Marc Joffe has an article about positive developments in Ohio and Nevada.

And here are some excerpts from a Forbes column by Patrick Gleason.

…there is another policy trend emerging that, like income tax relief and greater educational choice, is making states more attractive to workers and employers. That trend is the push by policymakers to remove or mitigate the barriers to employment that state occupational licensing requirements have become. …Universal License Recognition (ULR)…Nearly half of the states now have a ULR law. But four years ago, zero did, underscoring how quickly the ULR movement has grown. Former Governor Doug Ducey (R) made Arizona the first state to enact ULR back in 2019, with positive results observable in the subsequent years. …by also making occupational licensing requirements less taxing for new residents to comply with, both in terms of time and money, reform-minded governors and state lawmakers have honed in on a new way, like with rate-reducing tax reform, to make their states more attractive places to live, work, do business, and support a family.

This is great news.

Just as it is great news that states are cutting taxes and enacting school choice.

More evidence that federalism is the way to go.

P.S. Arizona’s former Governor, Doug Ducey, was remarkably good on licensing and many other issues.

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CFPB Price Controls Will Backfire

The great French economist from the 1800s, Frederic Bastiat, famously explained that good economists are aware that government policies have indirect effects (the “unseen”).

Bad economists, by contrast, only consider direct effects (the “seen”).

In modern terms, sensible economists realize that government policies often have indirect effects. These are sometimes called unintended consequences.

Here are a few examples of interventions that have backfired, often hurting intended beneficiaries. Here are a few examples:

• (Supposedly) pro-women policies that hurt women.
• (Supposedly) pro-student policies that hurt students.
• (Supposedly) pro-minority policies that hurt minorities.
• (Supposedly) pro-consumer policies that hurt consumers.
• (Supposedly) pro-worker policies that hurt workers.
• (Supposedly) pro-health policies that hurt health.

By the way, I began every example with “(supposedly)” because our friends on the left tend to have two reasons for pursuing bad policy.

Reason #1, depicted by the cartoon, is a naive do-gooder mentality. They see something that they think is unfair and they reflexively want the government to address the alleged problem. And since they don’t have any (good) economic training, they don’t consider the possibility that their preferred policies will make things worse.

Reason #2 is “public choice,” which is a term that describes how politician, bureaucrats, and voters put self interest above the national interest. Instead of being naive do-gooders, these are people who probably recognize that certain policies will backfire, but they simply don’t care because a policy has certain advantages, such as political popularity.

I didn’t intend to write such a lengthy introduction to today’s column, but you’ll understand my motivation when you read these excerpts from a Washington Post story by Tony Romm.

The government (supposedly) wants to help bank consumers by limiting overdraft fees.

The U.S. government on Wednesday proposed to limit bank overdraft fees, which companies can charge customers who spend more money than they have available in their accounts… The new draft rules, unveiled by the Consumer Financial Protection Bureau, could cap some of the charges as low as $3… Generally, overdraft payment programs function as a kind of loan: If a customer spends more money than they have, they can elect for the bank to process the transaction anyway. If they do, consumers must pay back the remainder they owe, plus a fee, which averages about $26 per overage nationally… Under the agency’s new draft proposal, banks would be subject to tough credit card-like regulations on their overdraft programs, unless they agree to lower fees on customers.

Reading this story, I don’t doubt that banks want to squeeze as much out of customers as possible (and the same is true for grocery stores, barber shops, and every other kind of business).

But there’s something else I don’t doubt, which is that this policy will backfire in some unintended way.

Why do I think that?

For the simple reason that we’ve seen this happen over and over again. When governments impose costs on the private sector, something bad happens. With lower-income people generally losing the most.

Here are just three examples from the financial services industry.

• Money laundering laws have not reduced criminal activity, but they have caused banks to cut off services to lower-income customers.
• Price controls on interest charges and debit card fees that didn’t lower consumer costs but did reduce access to financial services.
• So-called Basel rules created systemic instability by pushing financial institutions to over-invest in mortgages and government bonds.

Similar bad things will happen if the lavishly compensated bureaucrats at the boondoggle Consumer Financial Protection Bureau succeed in imposing price controls on overdraft fees.

We have 40 centuries of evidence that such policies backfire.

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FDA: Rewarding Itself for Failure by Grabbing More Power

The Food and Drug Administration has a rather dismal track record.

• Imposing a lengthy and expensive drug-approval process, leading to thousands of premature deaths.
• A bungled and incompetent response to the Covid pandemic.
• Its regulatory assault against vaping, this increasing the risk of smoking-related deaths.
• Exacerbating the shortage of baby formula.
• Absurd and silly examples of regulatory overreach.
• Needless cruelty to people with terminal diseases.

In other words, the FDA does a bad job and thus is a typical Washington bureaucracy.

It’s also a typical bureaucracy in that it wants more power and authority.

Here are some excerpts from a column by Joel Zinberg for National Review.

…the FDA’s proposed rule…explicitly asserts its long-claimed authority to regulate laboratory-developed tests (LDTs) as medical devices. …LDTs are performed billions of times a year in approximately 12,000 CLIA certified high-complexity laboratories… Despite the FDA’s claims to the contrary, there is little evidence that LDTs are less reliable or accurate than FDA-approved tests. And awaiting the FDA’s review and clearance of new tests can delay critical testing with disastrous results. Early in the Covid-19 pandemic, the FDA ceased its usual exercise of enforcement discretion… Unfortunately, the only EUA the FDA initially granted was for the Centers for Disease Control and Prevention’s test. Despite evidence that the CDC test was unreliable, the FDA persisted in requiring test EUAs that it seemed unwilling to grant. Testing was essentially unavailable during February 2020 as Covid-19 spread around the country.

Zinberg also explains that the FDA is ignoring the law as part of its campaign to impose billions of dollars of costs the industry.

It is doubtful that the FDA has statutory authority to regulate LDTs. The 1976 Medical Device Amendments to the FDCA do not mention laboratories, laboratory tests, or laboratory-testing services. …The FDA acknowledges that its rule will impose significant compliance costs on laboratories that offer LDTs — $35.5 billion over the multi-year phase-in and additional recurring costs of $4.2 billion — leading some laboratories to exit the market or discontinue certain LDTs they offer. Ninety percent of the laboratories offering LDTs are small businesses.

By the way, take a wild guess who will bear this multi-billion-dollar cost.

If you answer consumers, congratulations for being brighter than 98 percent of the people in Washington (admittedly that doesn’t say much).

Professor Alex Tabarrok of George Mason University was very blunt about the FDA’s proposal in a post for Marginal Revolution.

I have been warning about the FDA’s power grab over lab developed tests. Lab developed tests have never been FDA regulated except briefly during the pandemic emergency when such regulation led to catastrophic consequences. Catastrophic consequences that had been predicted in advanced by Paul Clement and Lawrence Tribe. Despite this, for reasons I do not understand, the FDA plan is marching forward.

Actually, based on this video, I bet Professor Tabarrok does understand why FDA bureaucrats are marching forward.

But he is expressing understandable frustration that they may get away with their bureaucratic power grab.

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Lessons from Reaganomics for the 21st Century, Part III

This week is focusing on Reaganomics, both to learn what happened in the 1980s and to determine whether similar policies are needed today.

I’m citing a paper I wrote for the Club for Growth Foundation.

• In Part I, we reviewed Reagan’s successful record of spending restraint and explained why the same approach is needed today, particularly to control entitlements.
• In Part II, we examined Reagan’s much-needed supply-side tax reforms and said the same insights are needed today to address the problem of double taxation.

Today, in Part III, let’s look at Reagan’s record with regards to red tape.

This chart from the study summarizes Reagan’s biggest achievement. He was able to arrest the growth of both regulatory restrictions and regulatory spending during his eight years in office.

Here’s some of what I wrote in the study, including some recognition of some good policies enacted at the end of the Carter years.

The chart…captures the broader impact of Reagan’s presidency. You can see that both regulatory budgets and regulatory restrictions were rising before Reagan took office, were basically flat when he was in office, and then resumed rising after he left office… Incidentally, it should be noted that Reagan’s predecessor got the ball rolling on deregulation. Airlines, trucking, and rail were partially or fully deregulated during the Carter Administration. Those policies were very successful in lowering prices and increasing efficiency in the respective industries. Reagan’s appointees helped implement those good reforms.

That’s the good news.

The bad news is that subsequent presidents have not shared Reagan’s belief in competitive markets.

…there has been a regulatory tsunami since Reagan left office. There are now almost twice as many pages in the federal register as there were in the late 1980s. Meanwhile, regulatory budgets have tripled and regulatory restrictions have doubled since the end of the Reagan years.

Since regulatory policy covers so many areas, dealing with excessive red tape requires several reforms.

In the study, I listed some changes that would help.

• Require the elimination of a certain number of existing regulations before a bureaucracy can impose a new regulation.
• Insist that all regulations pass a cost-benefit test overseen by independent economists at the Office of Information and Regulatory Affairs.
• Enact a regulatory budget to limit the overall cost of red tape.
• Implement a competitiveness requirement so that regulation is never stricter than our foreign competitors with regards to so-called agreements like the Paris Climate Accord.
• Require stand-alone approval by both the House and Senate before any major regulation (costing $100 million and above) can be finalized.
• Adopt “mutual recognition” agreements with advanced allied nations so that Americans can access everything from baby formula to prescription drugs without waiting for bureaucratic approval in the U.S.
• Create a Regulatory Bill of Rights to give anyone investigated by a regulatory agency the same legal rights as accused criminals, as well as the right to recover damages if bureaucrats engage in abusive behavior.

I’ll close by sharing another chart from the study.

Here is the Competitive Enterprise Institute’s estimate of how much regulation is costing the U.S. economy.

So yes, there is a need for a renewed commitment to control red tape.

I’ll close with two observation.

First, regulation is akin to creating an obstacle course for workers and entrepreneurs. Second, Americans are more likely to recognize that there is a problem than people in other nations.

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The Best and Worst States to Create a Small Business

Americans can see how their states rank for overall economic liberty.

• Economic Freedom of North America.
• Freedom in the 50 States.
• Report on Economic Freedom.

They can also see how states rank for fiscal policy.

• State Business Tax Climate Index.
• Fiscal Policy Report Card on America’s Governors.

Today let’s look at how various states rank based on whether they are good places to create a small business.

Unsurprisingly, having no state income tax helps, but that is just one variable. It is also very important to have modest fees.

The top three states are Wyoming, Florida, and South Dakota.

Here’s some discussion of the ratings, including methodology.

Brand new research conducted by small business advice company Venture Smarter reveals the best and worst states to startup an LLC. The experts have indexed all 50 U.S states (plus DC), ranking each against six factors necessary for starting up an LLC, to receive a score out of 100. …Rankings are based on factors including LLC annual fees, LLC filling fees, average LLC agreement bid costs (from professional in States required to have one), advertising and publishing costs, tax climate index scores, and number of small businesses per 100K residents.

And which states are worst?

California is in last place, followed by New York and Delaware.

I’m somewhat surprised to see a very bad score for Delaware.

The state is famous, after all, as a tax haven for companies. I wonder if this is a case of the state charging high fees because it actually provides high value?

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An Epiphany for Alexandria Ocasio-Cortez?

I’ve complained about excessive bureaucracy at the Food and Drug Administration.

And this is not just run-of-the-mill grousing about red tape. The FDA actually is responsible for needless deaths because of pandemic incompetence, anti-vaping mentality, and delayed approval for life-saving drugs.

Interestingly, I may now have an unexpected ally in the battle against FDA red tape. Congresswoman Alexandria Ocasio-Cortez, who usually has very statist inclinations, recently released a video condemning the bureaucracy for preventing Americans from having access to better-quality sunscreen.

US sunscreens are far behind the rest of the world and our regulations aren’t necessarily making our sunscreens better or safer — but it doesn’t have to be this way! pic.twitter.com/vaZXpZ2a7S

— Rep. Alexandria Ocasio-Cortez (@RepAOC) August 11, 2023

Wow, she acknowledges that that bureaucracy and red tape can lead to bad results. What an epiphany!

Though I don’t want to go overboard with praise. For instance, it’s not clear if she even wants to strip the FDA of its power to regulate sunscreen.

But perhaps this is the beginning of a long journey to libertarianism.

In which case, her future videos will expressly call for deregulation. And she’ll point out that a policy of “mutual recognition” would allow Americans to directly buy Korean sunscreen (the same approach could have solved the baby formula shortage).

P.S. I’ll close by noting that the FDA also does other bone-headed things. I’ve previously written about the bureaucracy’s war against unpasteurized milk (including military-style raids on dairies!). It also has dragged its feet on liberalizing birth control. Speaking of which, FDA red tape is responsible for the fact that Americans have a much more limited selection of condoms than Europeans.

P.P.S. If you think AOC will remain a leftist, you can click here, here, here, and here to laugh at her statism.

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Consumer Welfare and Antitrust Zealotry

In addition to discussing politicians and insider trading, I also was asked about antitrust laws during my recent CNBC appearance.

As you might imagine, I expressed skepticism about Biden’s plan for a more interventionist approach.

My view is that mergers should be governed by the market, not by politicians.

Especially when politicians have created a Catch-22 situation with antitrust laws.

Companies can be accused of improper behavior regardless of what they do.

• If they charge more than their competitors, that’s supposedly evidence of monopoly power.
• If they charge the same as their competitors, that’s supposedly evidence of collusion.
• If they charge less than their competitors, that’s supposedly evidence of predatory pricing.

Just like the poem from The Incredible Bread Machine.

For today, let’s focus on the specific issue of “consumer welfare,” which has limited the folly of antitrust policy by creating a presumption that mergers are okay if prices go down.

In a column for the Wall Street Journal last year, former Senator Phil Gramm and Mike Solon elaborated on this issue.

…over the past half-century, a bipartisan consensus has existed that antitrust law and enforcement should be anchored in consumer welfare. This consensus, beginning in the 1970s, was founded on a bipartisan rejection of Progressive-era regulatory frameworks that harmed consumers, competitiveness and economic growth. …The modern progressives who dominate the Biden administration..see the world through the lens of class warfare, as a zero-sum game. Like Progressives before them, they view the rule of law not as a cornerstone of liberty and democracy, but as an impediment to equality… Unlike most Americans, progressives view low prices as a problem, not a benefit. …With the consumer-welfare standard uprooted, antitrust would become a license to control the American economy, capriciously rewarding favored businesses and punishing disfavored ones.

Professor Brian Albrecht explained in National Review why politicians and bureaucrats should not abandon the consumer welfare standard.

U.S. courts and antitrust-enforcement agencies…, beginning in the 1970s, …turned toward economic reasoning to develop a consistent framework for determining antitrust violations. The result has been the elevation of consumer welfare as antitrust regulation’s fundamental concern. Based on this criterion, economic analysis is applied to business conduct alleged to be anticompetitive to determine the likely impact on consumers. Higher prices for goods or services, lower quality, or less output are the characteristic harms to be avoided. Unfortunately, the Federal Trade Commission (FTC) under chairwoman Lina Khan wants to rewind the clock. …the commission will decide what is “unfair” based on whether the conduct might harm “competition, workers, or other market participants.” If that sounds extremely vague, it’s because it is.

Back in 2021, John McGinnis wrote about antitrust and consumer welfare for Law and Liberty.

The Biden Administration wants to transform antitrust law. In doing so, it would dispense with a four-decade-old consensus that the welfare of consumers should be the object of competition policy. This principle would be replaced with a mixture of untested economic ideas combined with a view that antitrust law should somehow advance democracy. …Not only will this vision harm economic efficiency, it will also make it easier for government officials to reward friendly companies and punish those who do not do the administration’s bidding even on matters unrelated to competition. …the Biden administration’s blunderbuss approach to antitrust law is not limited to tech, but represents a potentially new mechanism of government control over the commanding heights of the economy.

Here’s a tweet from Pradyumna Prasad about antitrust laws.

It’s akin to the above cartoon since it points out that government policies are so convoluted that a company can be guilty regardless of the prices it charges.

I mentioned in the interview that antitrust bureaucrats have a dismal and embarrassing track record. Jessica Melugin of the Competitive Enterprise Institute summarized some of the most famous mistakes back in 2021.

*Standard Oil Co. of New Jersey v. United States had a defendant that was cutting prices while increasing output. The case also lacked evidence of either predatory pricing or consumer harm. *U.S. v. American Telegraph and Telephone Company (AT&T) broke up a monopoly that was created by government, not the market. The case illustrates how regulatory capture—regulated entities’ influence over the regulatory process—works to create and maintain monopolies. *The U.S. v. International Business Machines (IBM) case lasted for 13 years before the Department of Justice (DOJ), which brought the suit, deemed it “without merit” and dropped it. The multi-million-dollar litigation inadvertently raised prices for IBM customers. *Finally, U.S. v. Microsoft illustrates how technological innovation moves faster than litigators.

In a column for the American Institute for Economic Research, Professor Don Boudreaux explains that antitrust laws were enacted because established firms were upset about bigger (and more efficient) rivals charging lower prices..

The post–Civil War transcontinental expansion of railways and telegraphy, along with other technological developments such as the refrigerated railroad car, markedly increased the scale on which many goods could be profitably produced and supplied. Entrepreneurial firms that took advantage of these economies of scale expanded outputs and lowered prices to unprecedented levels. While as a result consumers reaped massive benefits, many established producers suffered. Older, smaller, and less entrepreneurial firms could not match the low prices offered by their large-scale rivals. The demise of many familiar, small-scale producers along with the rise of unprecedentedly huge firms — and equally unprecedented personal fortunes — created the mirage of monopolization. This mirage was opportunistically exploited by some producers who could not match the lower prices of newer and larger rivals. …This animus, in the late 19th century, of smaller-scale producers against their upstart, large-scale, and more efficient rivals supplied the fuel for antitrust legislation, first at the state level and soon afterward at the national level.

In other words, antitrust laws are a product of “public choice” incentives. Politicians always come up with excuses to grab more power.

P.S. You won’t be surprised to learn that Robert Reich does not understand antitrust.

P.P.S. There’s been massive turnover among Fortune 500 companies in the post-WWII era.

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Excellent Washington Post Editorial on the Dangers of Excessive Red Tape

Given the pro-big-government leanings of journalists, I sometimes complain about media bias.

That being said, you can sometimes find displays of common sense and sound thinking. Even from places that almost always support bigger government and more intervention., such as the editorial page of the Washington Post.

Here are some examples.

• Supporting school choice
• Supporting postal privatization
• Supporting birth control deregulation
• Doubting a tax on stock buybacks
• Doubting a financial transactions tax

Now we can add another editorial to this list.

Here are some excerpts from the Post‘s recent analysis of how to avoid another shortage of infant formula.

…the infant formula shortage that struck American families in 2022 has mostly abated… Yet…the main lesson of last year’s crisis: Ill-conceived or excessive government rules and regulations were themselves among its causes. Unless and until those are fundamentally reformed, the infant formula supply chain will remain vulnerable to another devastating rupture. …The best proof that this market is over-regulated came from the measures government took to alleviate the crisis, almost all of which involved, well, deregulation. Congress suspended tariffs, allowing imports to come in from Europe and elsewhere; the Agriculture Department, which administers WIC, allowed states to offer a wider variety of formula brands and packages than their current contracts covered. …A better policy would open the United States to appropriately regulated imports, make it easier for new domestic producers to enter the market and let all qualified suppliers sell in all states, counting on competition to temper prices.

Very sound. Almost reads like the column I wrote last year.

If we can get the Post to apply the same logical reasoning to other issues, that would be a momentous development.

P.S. The Washington Post was even semi-rational in an editorial on some tax issues.

P.P.S. Many decades ago, the New York Times had some relatively sensible editorials.

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Death by Regulation

As Frederic Bastiat sagely observed nearly 200 years ago, a good economist considers the indirect or secondary effects of any action.

For instance, a politician might claim we can double tax revenue by doubling tax rates, but a sensible economist will warn that higher tax rates will discourage work, saving, investment, and entrepreneurship.

And those changes in behavior (along with increases in evasion and avoidance) will result in less economic activity, which means lower taxable income. So tax revenues will not double. In some cases, they might even fall.

This analysis also applies to regulatory policy.

In an article for the Competitive Enterprise Institute, James Broughel explains how red tape actually causes needless death because of less economic growth.

Regulations can contribute to an increased death toll by imposing costs that eat into disposable income. As spending power dwindles, so too does the potential for spending on risk management and health-related expenses. This argument, known as the “wealthier is healthier” hypothesis, complements the idea that warmer is healthier. In fact, spending on energy is potentially a critical channel that can explain the frequently observed relationship between financial health and physical health, including mortality. Two of my own research papers include estimates of the level of cost sufficient to produce one expected death in society. Depending on the study method, my coauthors and I found that for about every $40 to $115 million in costs imposed on American society, we can predict one death will occur by virtue of individuals being made poorer. …the death toll from the regulatory state is not trivial. My CEI colleague Wayne Crews has estimated that the total cost of federal regulations was just under $2.0 trillion in 2022. Other studies put the cost even higher… If we take just the two low-end estimates of cost, at $80 million per expected death there are roughly 25,000 to 50,000 deaths annually that can be attributed to federal regulations (and this doesn’t count state and local regulations).

By the way, this type of cost-benefit analysis is universally accepted by economists. There are disagreements about magnitudes, of course, but even folks on the left recognize that “wealthier is healthier.”

P.S. In addition to the adverse overall impact of red tape, there are specific forms of regulation (FDA drug approval, anti-vaping rules, gun control, bans on organ transplants, etc) that lead to needless death.

P.P.S. As always happens when he addresses and issue, Thomas Sowell makes excellent points.

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Railroad Safety and Cost-Benefit Analysis

Economists are not anti-regulation, but they are skeptical of rules and mandates that don’t pass a cost-benefit test.

Politicians, meanwhile, generally don’t care about regulation. They are not impervious to evidence and analysis, but they mostly want to maximize votes, power, and money. If they can achieve those goals by deregulating (as happened during the Carter, Reagan, and Clinton years), we get better policy.

But if politicians think it is in their self interest to impose more red tape, that is likely to happen.

Sadly, it will even happen when cost-benefit analysis shows that more regulation will backfire because of tradeoffs and unintended consequences.

Consider what is now happening with regulation of the railroads.

Eric Boehm recently wrote about this topic for Reason. Here are some excerpts.

…in May 2019, the Department of Transportation withdrew a proposed regulation that would have required all freight trains in the United States to operate with two-person crews. …After three years of investigating the issue, the FRA reported that accident data did not show two-person crews to be any safer than one-person crews. The National Transportation Safety Board (NTSB) agreed, telling the FRA that “There is insufficient data to demonstrate that accidents are avoided by having a second qualified person in the cab.” Then, in February, a train derailed in East Palestine, Ohio. It spilled vinyl chloride… Ohio Sens. Sherrod Brown, a Democrat, and J.D. Vance, a Republican, have rushed forward with the Railway Safety Act, a bill that would impose the two-person crew requirement that the FRA considered and rejected in 2019. The rule still has nothing to do with safety. Indeed, the train that derailed in East Palestine had a crew of three aboard. …As such, it is a useful illustration of how right-wing populists like Vance are actually advancing long-running goals of the political left… That includes Trump, of course. Even though it was his administration that killed the two-man-crew mandate in 2019, the former president is now a strong supporter of the bill that would impose the same mandate.

I’m guessing that Trump doesn’t realize that he’s flip-flopping on the issue. And he probably wouldn’t care if he did know.

J.D. Vance, however, probably is aware that he’s pushing bad policy. But he presumably thinks the potential political benefits for himself matter more than the economic harm to the country.

The two-man-crew mandate is just the start. The Railway Safety Act also grants broad new powers to Transportation Secretary Pete Buttigieg, who would be responsible for creating a new regulatory regime to govern trackside sensors and the power to write new regulations for railcars and their routine inspections. Regulations that make it more difficult or expensive to ship goods by rail will actually undercut safety by pushing more hazardous materials onto roadways… Legislation that exclusively piles new regulations onto rail will trigger “higher rail shipping costs and more goods traveling by truck, which would be a decidedly inferior outcome for society,”… In supporting the Railway Safety Act, Vance and Trump are signaling support for a litany of left-wing goals: growing the regulatory state, giving bureaucrats more power over American businesses, and protectionism for union jobs. They’re also falling into the same trap as many progressives: ignoring trade-offs and obvious unintended consequences.

Sadly, enactment of dirigiste policy is very typical when politicians only care about headlines and ignore cost-benefit analysis. Anti-vaping rules, economic lockdowns, recycling policy, money laundering laws, and the Food and Drug Administration are all examples of this phenomenon.

The bottom line is that Sen. Vance and Pres. Trump are wrong. The correct answer is free enterprise, not more power for politicians and bureaucrats.

P.S. Cost-benefit analysis puts a lot of people to sleep, but Remy managed to make the topic very amusing in this video.

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OECD Bureaucrats Criticize USA for Absence of Parental Leave Mandate

Usually with regard to government-run health care, folks on the left commonly criticize the United States for being the “only country” that does not  provide this or that handout from the government.

That should not be a persuasive argument without first looking at whether the United States is doing better or worse than other nations.

And based on comparative living standards, the United States is far ahead.

So why copy the policies of countries where people are way behind?

But that doesn’t seem to matter to proponents of bigger government such as the bureaucrats at the Paris-based Organization for Economic Cooperation and Development.

Here are some excerpts from an OECD publication about paid parental leave, authored by Jason Fluchtmann.

Except for the United States, all OECD countries have national statutory rights that entitle mothers to (de facto) paid maternity leave around childbirth. …these entitlements are designed to protect infants and mothers around childbirth, to give both parents the necessary time to provide childcare during the early stages of life of a new-born, and ensure that fathers and mothers are financially supported during their time on leave… Across the OECD, statutory rights to paid maternity leave are provided with an average length of 18.5 weeks as of April 2022…, ranging from 43 weeks in Greece (the longest entitlement) to none in the United States – the only OECD member with no national provision of paid maternity leave.

Here is an accompanying chart showing the United States compared to other OECD nations (needless to say, the article never addresses the issue of whether Greece should be a role model).

To hammer home the point, the OECD article concludes with advice for governments.

One thing you may notice is that the OECD report, for all intents and purposes, only looks at supposed benefits and ignores very real costs.

That’s incredibly sloppy. Such policies have very substantial costs.

Here’s some of what Veronique de Rugy wrote a few years ago for Reason.

…calls are intensifying for the federal government to implement paid leave, which may unwittingly hurt those whom the program claims to help. …women would like to get paid to stay home after the birth of their children, yet that’s no more evidence of a market failure than is my not driving a Tesla, even though I’d like to drive one if it were free. This isn’t a reason for government to mandate paid leave (or Teslas) for all workers. …Because paid leave is costly, when firms provide this benefit, they change the composition of their employees’ total compensation by reducing the value of workers’ take-home pay to offset the cost of providing paid leave. While some workers prefer this mix in their pay packages, others don’t. In particular, mandated leave would be a hard trade-off for many lower-paid women who would prefer as much of their income as possible in the form of take-home pay. In fact, polls show that when women learn of the trade-offs inherent in any government-mandated paid-leave policy, their support for such a policy collapses.

As is always the case, Veronique is right. Paid parental leave is not a freebie. If politicians force employers to incur certain costs, workers will bear the burden.

P.S. Parental leave was one of many issues where Trump was in favor of big government rather than economic liberty.

P.P.S. I’m not surprised that OECD bureaucrats push statist policies. They get tax-free salaries (subsidized by American taxpayers!) and thus are insulated from the real-world impact of their dirigiste agenda.

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Big Business vs. Free Enterprise

I explained during a recent speech in Poland that I get very upset when big companies support policies that disproportionately harm small businesses.

By the way, I have no objection to big companies simply because they are big. Or merely because they sometimes earn a lot of profit.

But, as captured by my Eleventh Theorem of Government, I don’t like big business when it gets in bed with big government.

That’s a recipe for all sorts of bad policies, and also a major source of political corruption.

For purposes of today’s column, though, let’s consider how it is a recipe for reducing competition.

We can now quantify the damage, thanks to some new research by Professor Shikhar Singla, published by Goethe University in Frankfurt.

…the total economy-wide cost of regulations since 1970 has increased by almost 1 trillion dollars, which is roughly 5% of US GDP in 2018. …there has been a massive increase in regulation since the late 1990s. …an average small firm faces an average of $9,093 per employee in our sample period compared to $5,246 for a large firm. …We find that a 100% increase in regulatory costs leads to a 1.2%, 1.4% and 1.9% increase in the number of establishments, employees and wages, respectively, for large firms, whereas it leads to 1.4%, 1.5% and 1.6% decrease in the number of establishments, employees and wages, respectively for small firms… Results on employees and wages provide evidence that an increase in regulatory costs creates a competitive advantage for large firms. Large firms get larger and small firms get smaller. …The smaller the firm, the more competitively disadvantaged it gets… Fixed costs create a competitive disadvantage for small firms. …We find that large firms oppose regulations in general. But, they push for regulations which have an adverse impact on small firms. Hence, they are willing to incur a cost that creates a competitive advantage for them.

How much of a competitive advantage?

It’s become very significant this century, as shown by Figure 10 from the study.

Policy obviously veered in the wrong direction at the end of the Clinton Administration and then (unsurprisingly) stayed bad during the Bush, Obama, and Trump years.

And policy is staying bad during the Biden years.

The Wall Street Journal editorialized on this topic in 2021. Here are some excerpts.

…what’s really going on: Old-fashioned self-interest. …Take Amazon CEO Jeff Bezos’s endorsement of a higher corporate tax rate. …Mr. Bezos knows a higher rate would hurt Amazon much less than it would other companies. …Mr. Bezos can buy some political goodwill by providing cover to Democrats on taxes, while his company will benefit on the tax subsidy side of the ledger. Big businesses also know they can afford the higher costs of new regulation that smaller competitors cannot. That helps explain Big Oil’s embrace of methane emission rules in the Obama years that hurt independent frackers, as well as putting a price on carbon now. …Or consider the rush by Big Finance to endorse environmental, social and governance investing, or ESG. …BlackRock CEO Larry Fink is an enthusiast, and guess who will benefit if Biden Administration regulators set new requirements for ESG disclosure or investing? ESG lets BlackRock charge higher investment fees than it can charge for index funds that buy the entire market. …corporations look out first and foremost for their own interests, and that often means collaborating with government for narrow purposes that aren’t always in the public interest.

This is disgusting. And it’s not the first time Bezos and Amazon have tried to hurt small businesses.

In my fantasy world, we would have separation of business and state.

In the real world, I’ll be happy if we can simply block the left’s ESG agenda so that big companies will be forced to earn money in the market rather than steal money via politics.

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Another Bureaucratic Attack on Lifestyle Quality (and Freedom of Choice)

The nanny-state crowd in DC generates red tape with big macroeconomic costs. But also quality-of-life costs.

• Inferior light bulbs
• Substandard toilets
• Inadequate washing machines
• Dribbling showers
• Dysfunctional gas cans
• Crummy dishwashers

And it seems they never rest. After making one part of our life less convenient, they search for a new target.

Next on their list is an attack on gas stoves.

This is not because these appliances are exploding.

It’s not because they lead to fire hazards.

And it’s not because they leak gas and cause preventable deaths.

Instead, the bureaucrats imagine we might possibly be at risk of something, somehow.

I’m not joking. Here are some excerpts from a Wall Street Journal editorial about the latest assault on appliance freedom.

Coercion in the cause of banning fossil fuels is no vice for the Biden Administration… The Consumer Product Safety Commission (CPSC) could soon ban gas stoves. CPSC Commissioner Richard Trumka Jr. teased in an interview…that the agency plans to propose new regulations for gas stoves, which could include a ban. …Mr. Trumka isn’t worried that gas stoves might cause accidental burns—a hidden hazard for electric range-tops that stay hot long after they’re turned off. Instead, the agency’s purported concern is that gas stoves cause indoor air pollution and asthma, though there’s scant evidence to support such claims. …The real hazard isn’t gas stoves but how people use them. Not that this distinction matters to the CPSC, which has a long history of targeting products…because of accidents that are the fault of customers. In this case, Mr. Trumka wants to use indoor pollution as a pretext to advance the climate left’s goal of forcing all buildings to use electricity for everything.

In a column for National Review, Charles Cooke has a withering assessment of this hare-brained initiative.

One could advance any number of compelling arguments against the Biden administration’s reported desire to institute a nationwide ban on gas stoves. …yet to offer any of these objections would ultimately be counterproductive, insofar as it would signal an acceptance of the premise underlying the policy, which is that this is the sort of matter that a free people should expect their federal government to superintend. …That’s right. The correct response here is a rather simple one, all told: Go away. Leave us alone. Stick your ludicrous propositions where the sun don’t shine. …That is a private matter — a matter in which the powers that be ought to have no say. …most of the “science” that’s being sold by the Anti-Stove Brigade seems extremely thin to me, but, even if it weren’t, I still wouldn’t give a toss about it, because I’m an adult, and I’m aware that life is full of trade-offs. …Justifying the administration’s proposed move, CPSC commissioner Richard Trumka Jr. explained that “products that can’t be made safe can be banned.” What, I wonder, would be excluded from that definition?

Amen, especially to the point about letting adults take risks.

• Drinking can be risky, but that doesn’t mean we should have prohibition.
• Doing drugs can be risky, but that’s not an argument for the War on Drugs.
• Smoking can be risky, but that’s hardly a reason to impose a cigarette ban.
• Vaping can be risky, but it’s very misguided to restrict the freedom to vape.
• Consuming sugar can be risky, but politicians should not ban Big Gulps.

And there are lots of other activities that have produce risks of death and injury, such as scuba diving, hang gliding, skateboarding, etc.

In a free society, none of these things should be controlled by government bureaucrats.

P.S. Let’s not forget how some subnational governments are going after plastic straws.

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Applauding Governor Ducey of Arizona

Because politicians have built-in incentives to expand the size and scope of government, it is very rare to find elected officials who actually deliver more liberty.

Some of them will offer rhetoric, of course, but very few of them produce results.

That’s true nationally (with limited exceptions), and it’s true internationally (with limited exceptions).

And it’s almost certainly true at the state level.

Though I found an exception, and that is the topic of today’s column.

The outgoing governor of Arizona, Doug Ducey, deserves praise from libertarians and small-government conservatives.

George Will is especially impressed with Ducey’s education reforms (and I agree).

Here are some excerpts from his Washington Post column.

With two trenchant sentences, the nation’s most successful governor of the 21st century defines the significance of his signature achievement: “Fifty years ago, politicians stood in the schoolhouse door and wouldn’t let minorities in. Today, union-backed politicians stand in the schoolhouse door and won’t let minorities out.” Hence Gov. Doug Ducey’s Empowerment Scholarship Account program, which was enacted this year to provide universal school choice in grades K-12. Every Arizona family is eligible to receive about $7,000 per student per year to pay for private school tuition, home schooling, tutoring, textbooks, online courses, programs for special-needs pupils and more. …ESA was ferociously opposed by the teachers’ unions, whose confidence in the quality of their schools can be gauged by their fear of competition. A union attempt to repeal ESA by referendum failed to get enough signatures to qualify for the ballot, partly because of a group (Decline to Sign) in which, Ducey said here last week, Black leaders were disproportionately active.

The Wall Street Journal is impressed with his tax reform (and I agree).

Arizonans who fled California for sunnier tax climes can breathe easier after a court ruling that has saved the day from a punitive 8% top state tax rate. A state judge…struck down Arizona’s Proposition 208, which placed a 3.5% surtax on incomes above $250,000, or $500,000 for joint filers. …Nixing the surtax means Arizona will soon have a flat tax of 2.5% on individual incomes, the lowest flat rate among states with an income tax. Gov. Doug Ducey slashed the previous 4.5% top rate in his 2022 budget… Tax competition has helped Arizona draw residents and businesses from neighbors like California, but the surtax would have sent the Grand Canyon State down a Golden State path. The tax’s $250,000 income threshold made it a particular burden on small businesses that pay taxes under the individual code. The episode is a reminder of the value of constitutional guardrails on state taxes and spending. Arizona voters in 1980 placed limits on school spending through a ballot initiative, preventing unrestrained budget bloat.

In a column for National Affairs, James Glassman mentions school choice and the flat tax, but also a few of his other accomplishments.

Since Arizona’s governor is limited to eight years in office, Ducey’s second term — which ends in January — will be his last. This makes it an opportune time to consider Ducey’s legacy… This past January, Ducey told the state legislature, “[l]et’s think big and find more ways to get kids into the school of their parents’ choice…” In July, he did just that. The Empowerment Scholarship Account program — the most expansive school-choice program in America — is a pure choice-based system that provides $6,500 per student to any family that prefers an alternative to public schools. …When he entered office, he announced that he wanted the state’s personal income tax rate, which stood at 4.5%, to be “as close to zero as possible.” He started by indexing brackets to inflation, then chipped away at the rate with dozens of specific reductions. Finally, last year, he signed into law the largest tax cut in the state’s history, which will achieve a flat tax of 2.5% within three years. On regulatory policy, …he axed or modified more than 3,000 regulations. …he signed the first universal occupational-licensing law in the nation: Arizona now automatically recognizes occupational licenses issued by any other state. He also eliminated initial licensing fees for applicants from families making less than 200% of the federal poverty level.

Ducey’s licensing reform is especially impressive. For all intents and purposes, he adopted an approach based on “mutual recognition,” and that makes it much easier for people in other states to shift economic activity to Arizona.

P.S. George Will’s column also notes that Ducey is not a fan of Republicans who want to surrender to bigger government.

During a September speech at the Ronald Reagan Presidential Library in California, Ducey deplored the fact that “a dangerous strain of big-government activism has taken hold” in the Republican Party, and “for liberty’s sake we need to fight it with every fiber in our beings”.

Amen. Whether it is called national conservatism, compassionate conservatism, kinder-and-gentler conservatism, common-good capitalism, reform conservatism, or anything else, bigger government is bad news for ordinary citizens.

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Save Lives by Slapping Down the FDA’s War on Vaping

There are many reasons to have disdain for the Food and Drug Administration (pandemic failures, baby formula shortage, delayed drug approval, human cruelty, etc) and this video gives you another.

If you don’t want have time to watch the video, all you really need to know is that there is a lot of scientific evidence showing that vaping is far safer than smoking.

And “far safer” is an understatement.

So if the goal is reducing risk and helping people live longer, giving smokers the option of switching to e-cigarettes and other vaping products should be a no-brainer.

But an absence of brains seems to be a major qualification for some bureaucrats. The FDA is actually trying to criminalize vaping.

I’m not joking. In a column for Reason, Veronique de Rugy bluntly explains the horrific consequences.

There’s something terrifying about a government so powerful that it can shut down your business overnight without even bothering to offer substantive arguments. Yet that’s what U.S. Food and Drug Administration bureaucrats just did to the e-cigarette company Juul. …Most of the…victims will be cigarette smokers. …the FDA has ordered all Juul e-cigarette products off the market even though its own decision features this remarkable admission: “…the FDA has not received clinical information to suggest an immediate hazard associated with the use of the JUUL device or JUULpods.” In other words, neither Juul’s effectiveness in turning smokers away from more dangerous products nor its success at getting some smokers to quit altogether is, for the FDA, sufficient evidence of the product’s benefit to public health. …the FDA all but guarantees that smokers will smoke more cigarettes, turn to less-established products or even go to the black market to get their nicotine fixes. …The FDA’s war…will…likely claim hundreds of thousands of adults who continue to inhale tar from cigarettes thanks to the agency’s refusal to allow safer, but also appealing, alternatives.

There is a sliver of good news. A court has temporarily blocked the FDA’s deadly decision.

But it is unclear whether that will lead to a permanent victory for better policy.

So what’s the bottom line?

Proponents of a ban fixate on the risk that vaping can be a gateway to nicotine use. And maybe even a gateway for smoking. And they are especially concerned about teenagers getting hooked.

These are legitimate concerns. But cost-benefit analysis shows that those risks are outweighed by the risks of people consuming cigarettes when vaping is not an option.

Many years ago, I wrote at article for the Journal of Regulation and Social Cost to explain how many government policies are indirectly deadly. With its war against vaping, the government is being more direct.

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Baby Formula and Big Government

While I definitely criticized the Food and Drug Administration for its many mistakes during the pandemic, I only made passing reference to that bureaucracy when referencing the shortage of baby formula during the concluding portion of a recent program.

And even that mention was not negative.

I was vaguely aware that the FDA had temporarily shut down a factory in Michigan because of concerns about bacteria in formula. And even a curmudgeonly libertarian like me did not view that as being a bad thing.

So I basically assumed that the severe shortages depicted in this map were mostly the result of bad luck.

But I should have known that bad government policy also played a big role.

The above map comes from an article for Reason by Jonathan Alder. Here’s some of what he wrote.

…if you’re having a hard time finding infant formula, you can thank Uncle Sam. …a combination of arguably well-intentioned policies have combined to magnify the effects of the Abbott recall and prevent American consumers from having access to alternative supplies. These include tariffs and quotas on infant formula imports, Food and Drug Administration regulations, and other government policies that both constrain imports and reduce the incentive for foreign producers in countries like Canada to invest in production that could help serve the American market. …There are steps the government could take to ease the shortage, such as removing or temporarily suspending FDA rules that bar the importation of infant formula from countries. …Infant formula that is perfectly safe and that is produced in accordance with European standards that are at least as stringent as US health and safety requirements, cannot be imported because the FDA has not reviewed and approved what is printed on the package, which is a costly and time-consuming process for producers.

The Wall Street Journal opined on the topic as well.

By now you’ve heard that some 40% of the nation’s baby formula is out of stock… This should never happen in America. How did it? Here’s the government part of the story you won’t hear from the political class. …the market is so concentrated is tariffs up to 17.5% on imports, which protect domestic producers from foreign competition. Non-trade barriers such as FDA labeling and ingredient requirements also limit imports even during shortages. …the Trump Administration sought to protect domestic producers by imposing quotas and tariffs on Canadian imports in the USMCA trade deal. …America’s baby-formula shortage illustrates how bigger government can make big business bigger, thereby limiting competition and choice.

Jon Miltimore, writing for the Foundation for Economic Education, further criticized government policy in this area.

…the government itself is primarily responsible for the baby formula shortage. …the New York Times…reported in March 2021, “baby formula is one of the most tightly regulated food products in the US, with the Food and Drug Administration (FDA) dictating the nutrients and vitamins, and setting strict rules about how formula is produced, packaged, and labeled.” …many American parents buy “unapproved” European formula even though…it’s technically against the law. …On this black(ish) market, it turns out Americans are willing to pay big bucks for European formula. …At times, these nefarious black market imports have resulted in high profile busts, like in April 2021 when US Customs and Border Protection agents in Philadelphia seized 588 cases of baby formula (value: $30,000) that violated the FDA’s “import safety regulations.” Some may contend that the FDA is simply keeping Americans and their babies safe—which is no doubt what regulators want you to believe—but this overlooks an inconvenient fact: despite the FDA’s efforts, Americans are consuming vast amounts of black market baby formula, and the children are doing just fine.

Robby Soave also addressed the issue for Reason.

U.S. officials could have made such shortages less likely by approving baby formula that is widely available in Europe, but per usual, the Food and Drug Administration (FDA) has other priorities. The agency has a long history of taking forever—years and years and years—to approve foods and medications that European officials have already decided are perfectly safe for human consumption. …This is yet another in a long line of failures: Both the FDA and the Centers for Disease Control and Prevention (CDC) screwed up the early approval process for COVID-19 testing. …The FDA should really stop erecting regulatory hurdles that make it harder for working-class parents to feed their families.

I don’t know if the FDA has been over-zealous in closing the Abbott plant in Michigan, so I won’t comment on that issue.

But I do know that imposing trade taxes on imports of baby formula is a bad idea.

And I know it’s also a bad idea to deny Americans the freedom to buy European-produced baby formula, especially since FDA bureaucrats simply don’t like certain labels.

Indeed, I’ll close by making the key point that we should have “mutual recognition” policies with other advanced nations. In other words, we should start with the default assumption that consumers have the right to buy goods from countries such as Japan, Netherlands, Australia, and the United Kingdom.

This type of “good globalism” should be part of well-designed free-trade agreements with peer countries.

P.S. Mutual recognition also allows for regulatory diversity, which reduces systemic risk.

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The Failure of Bidenomics, Part VI

Having addressed Biden’s track record on subsidies, inflation, protectionism, household income, and fiscal policy, let’s finish our series by reviewing the president’s record on regulatory issues.

The first place to start is the Federal Register, which is Uncle Sam’s official site for new rules.

Though it gives us conflicting information. The number of pages (a crude measure of regulatory zeal, as I noted a few years ago) actually decreased during Biden’s first year. But only compared to Trump’s last year.

To understand what’s really going on, let’s look at the Forbes article from which the above table was taken.

Clyde Wayne Crews of the Competitive Enterprise Institute sifts through the data and concludes that Biden is a fan of expanded red tape.

The Federal Register is the daily depository of rules and regulations produced by hundreds of federal departments and agencies. …Under Biden, the regulatory establishment has its Hall Pass back, and it shows. The Federal Register page count ended the year with 74,532 pages. …The 2020 count under Trump was far higher, at 86,356. There had been “only” 61,308 pages back in Trump’s first year of 2017, which had been the lowest count in a quarter-century… Trump’s first year represented a 35 percent drop… But Trump’s final year made him number two… How come? Well, …removing rules that ought not have been written in the first place still requires writing new rules to do it. …So, paradoxically, any concerted Trump moves on “one-in, two-out” in service of deregulating and removing that which came decades before required fattening the Register to some extent. …Despite Biden’s lower Federal Register page count, we’re nonetheless back in the mode of not just unapologetically but combatively fattening the Federal Register. …several hundred of Trumps rules had been deemed “deregulatory” for purposes of his one-in, two-out program… Biden’s revivalist counts are embedded with no such purpose… Trump definitely left a mark. Biden is working on erasing it.

Incidentally, I don’t think regulatory experts from the left would disagree with the above assessment.

For instance, Brookings has a regulatory tracker that monitors what’s been happening since Biden took office and you will not find any evidence that the current administration is interested in limiting or reducing red tape.

Let’s wrap up by looking at a specific example of Biden’s regulatory excess. It’s about domestic energy production, which is a very timely issue given what is happening in Ukraine.

Ben Cahill of the Center for Strategic and International Studies summarized some of what Biden did to hinder America’s ability to produce energy.

President Joe Biden has followed through on a campaign pledge by introducing a moratorium on new oil and gas leasing on federal lands and waters. With nearly 25 percent of U.S. oil and gas production coming from federal lands, the policy shift may have significant implications for future investment and production. …This pause will not affect existing operations or permits for existing leases, and private lands will not be affected. …A more permanent leasing ban would have a significant impact, although visible offshore production declines may not materialize for up to 10 years, given the typical timeframe for planning, exploration, appraisal, and development. Onshore production declines could conceivably show up faster.

As you can see, the main damage is to future energy production rather than current energy production.

Needless to say, the same is true about the Biden Administration’s limitations on energy exploration and development in Alaska.

And don’t forget about pipelines (and geopolitics!), as mentioned in this column by Kevin Williamson for National Review.

The Biden administration already is reaching out to Caracas, where officials describe the initial conversation as “cordial” and “respectful.” I’ll bet it is. And Maduro’s isn’t the only tyrannical tuchus that requires kissing: President Joe Biden is said to be planning a personal trip to Riyadh to beg Crown Prince Mohammed bin Salman to ramp up Saudi production. …Right about now, President Biden must be wishing he had an extra pipeline to Canada. The thought has occurred to Alberta premier Jason Kenney, who observes about Keystone XL: “If President Biden had not vetoed that project, it would be done later this year — 840,000 barrels of democratic energy that could have displaced the 600,000 plus barrels of Russian conflict oil that’s filled with the blood of Ukrainians.” …We could spare ourselves some of these calculations by maximizing our own output — not only of crude oil and natural gas but also of refined-petroleum products. That would also mean building the necessary pipeline infrastructure and reforming our antiquated maritime regulations to enable the transportation of those fuels.

The bottom line is that the Biden Administration wants more regulation and red tape.

That has adverse consequences for economic dynamism and growth.

Especially when bureaucrats at the regulatory agencies ignore cost-benefit analysis (or put their thumbs on the scale to get a result that matches their ideological preferences).

And, in the case of energy, regulatory policy can have significant geopolitical implications as well.

P.S. You can click here to learn something about Obama’s record on the issue, and click here to learn a bit about Trump’s track record as well.

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Jimmy Carter’s Stellar Record on Transportation Deregulation

While specific examples can be very complex, the economic analysis of regulation is, at least in theory, quite simple.

Rules and red tape impose burdens that hinder economic activity, and this leads to higher costs for businesses and consumers.

These higher costs may be justified in some cases. That’s why it’s important to have high-quality cost-benefit analysis.

But in many cases, such analysis will show that regulation doesn’t make sense.

Fortunately, some presidents have understood that too much regulation is bad for prosperity.

Consider, for instance, the excellent track record of Jimmy Carter. We’ll start with an article by Norm Singleton for RealClearMarkets.

…deregulation was a major part of Carter’s economic agenda and one of the greatest aspects of his legacy.  It’s something that Carter and Reagan had in common, not something that set them apart. Carter—and other leading progressives at the time such as Ralph Nader—understood…Regulation frequently, if not always, benefits big businesses…at the expense of small businesses and most importantly, consumers. …the Civil Aeronautics Board (CAB), set airline routes, flight, schedules, and even prices. The result was 10 airlines enjoyed a de facto government-protected 90% of the air travel market: a monopoly with extra steps. This supposedly “pro-consumer” regulatory system made flying unaffordable for many Americans. Consequently, Carter signed the Airline Deregulation Act of 1978, ending the CAB’s power to control air travel. The result was new airlines entering the market offering lower prices and expanded routes. …Carter also pushed Congress to deregulate trucking and railroads.

Here are some details on the benefits of trucking deregulation, from a study by Andrew Crain published in the Journal on Telecommunication and High Tech Law.

The ICC was given jurisdiction over trucking companies and prevented competitive entry by rarely granting new trucking permits. The development of efficient trucks should have been a great boon to shippers. …ICC regulations, however, prevented truckers from offering those benefits to consumers. Trucking companies were forced to travel set routes at set prices. …During his presidential campaign, Carter promised to pursue deregulation. …Carter was good to his word. In 1979, he appointed three deregulation proponents to the ICC, Darius B. Gaskins, Marcus Alexis and Thomas Trantum. …In July 1980, Carter signed the Motor Carrier Act, which lifted most restrictions on entry, on the goods truckers could carry, and on the routes they could travel. …Rates fell, and trucking companies multiplied.

Jeremy Lott discusses Carter’s achievement on rail deregulation in a piece for the Washington Examiner.

The same regulatory regime had been in place since the Interstate Commerce Act of 1887, which regulated railroads…with price controls and mandates…. The elected official who took the lead on changing things is the person for whom the Staggers Act is named, Democratic Rep. Harley Staggers of West Virginia, then the chairman of the House Interstate and Foreign Commerce Committee. “The good thing about the Staggers Act is that it eliminated or greatly reduced federal regulation over most railroad operations that had been slowly killing the industry over decades. Freight railroads on life support were freed from rigid price controls and service mandates and quickly began to rebound, became profitable again, and U.S. freight railroads are once again the top-performing freight rail system in the world,” Marc Scribner…told the Washington Examiner. …”Over the past 40 years, rail traffic has doubled … rail rates are down more than 40% when adjusted for inflation … and recent years have been the safest on record,” the AAR said. 

And Ian Jefferies of the Association of American Railroads, in a column for the Wall Street Journal, explained how the industry has improved with less red tape.

…there was a time when both parties could agree on the benefit of…regulatory reform. The bipartisan Staggers Rail Act of 1980, passed by a Democratic Congress and signed by President Jimmy Carter, deregulated the freight railroad industry. …Previously, railroad rates and service were set by government, and carriers were often forced to provide service on lines lacking commercial viability. …The impact on railroads was predictable and disastrous. At one point, 1 in 5 rail miles was serviced by bankrupt railroads. …deregulation was chosen over nationalization, which would have cost taxpayers billions of dollars. …the Staggers Act not only improved service along the mainline network; it helped give birth to a short-line rail industry that today operates 50,000 miles of the 140,000-mile network that spans across the United States. …Since 1980, freight railroads have poured more than $710 billion of their own funds back into their operations. Average rail rates are 43% lower today than in 1981 when adjusted for inflation. This translates into at least $10 billion in annual savings for U.S. consumers.

Michael Derchin’s column in the Wall Street Journal notes how a retiring Supreme Court Justice played a key role in deregulating air travel.

Justice Breyer, who joined the Supreme Court in 1994 and plans to retire this summer, has cited his research for the Airline Deregulation Act as among his best and most significant work. …The late Sen. Edward M. Kennedy reached out to Mr. Breyer in 1975. Kennedy…saw deregulation as key to increasing competition and making air travel more affordable. Mr. Breyer, then a professor at Harvard Law School, worked with Kennedy… The Airline Deregulation Act of 1978 passed with bipartisan support and created a free market in the commercial airline industry. Government control of fares, routes and market entry for airlines was removed, and the Civil Aeronautics Board’s regulatory powers were phased out. …Since deregulation, average domestic round-trip real airfares have plunged about 60%, to $302 from $695. Load factors—the percentage of seats filled on each flight—stood at 84% just before the pandemic, compared with 55% before deregulation. In the early 1970s, 49% of U.S. adults had flown. In 2020 the share was 87%.

Here’s a chart showing how consumers have been big winners.

So what’s the bottom line?

As Phil Gramm and Mike Solon explained last year in the Wall Street Journal, the United States is still enjoying the fruits of Jimmy Carter’s deregulatory achievements.

Far from hurting consumers, as progressive myth alleges, deregulation of the U.S. transportation system unleashed a wave of invention and innovation that reduced logistical transportation cost—the cost of moving goods as a percentage of gross domestic product—by an astonishing 50% over 40 years. Airline fares were cut in half on a per mile basis, while air cargo surged from 5.4% of all shipments to 14.5% by 2012… In this Carter-Kennedy led reform, the duty of government was to protect the consumer from harm, not to protect the producer from competition. Without the productive energy released by deregulating airlines, trucking, railroads…, the U.S. might not have found its competitive legs as its postwar dominance in manufacturing ended in the late 1970s. The benefits of deregulation to this day continue to make possible powerful innovations that remake the world.

That’s the good news.

The bad news is that Joe Biden is hardly another Jimmy Carter.

P.S. Daniel Bier, in a column for the Foundation for Economic Education, points out that Carter even deserves credit for deregulating the beer market.

Carter’s most lasting legacy is as the Great Deregulator. Carter deregulated oil, trucking, railroads, airlines, and beer. …In 1978, the USA had just 44 domestic breweries. After deregulation, creativity and innovation flourished in the above-ground economy. Today, there are 1,400 American breweries. And home brewing for personal consumption is also now legal.

If you want to know more about beer deregulation, click here. If you want to know who makes a lot of money from beer sales, click here.

P.P.S. Jimmy Carter didn’t have a good record on fiscal issues, but he was more frugal than almost every Republican president over the past six decades (with Reagan being the obvious exception).

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America’s Most Libertarian State Is…

When I wrote about the 2018 edition of Freedom in the 50 States, Florida ranked as the nation’s most libertarian state.

In the 2021 version, New Hampshire takes the top spot (reclaiming the lead it had back in 2016).

Here’s a map showing the 10 best and 10 worst states. One obvious takeaway is that New Hampshire deserves extra praise because it is in a region where there seems to be a general disdain for economic and personal liberty.

And here’s a table showing how all the states rank.

As you can see, Florida is still a very good state.

Indeed, Florida is getting better over time. All that happened in the new edition of Freedom in the 50 States is that New Hampshire got better even faster.

This seems to be a pattern.

You can see from Figure 9 that the best states have been getting better over the past 10 years while the worst states are stagnating.

If you want some background on the publication, here’s how the authors (Will Ruger and Jason Sorens) describe their index.

…the 2021 edition examines state and local government intervention across a wide range of policy categories—from taxation to debt, from eminent domain laws to occupational licensing, and from drug policy to educational choice. …We…strive to make it the most comprehensive and definitive source for economic freedom data on the American states. …Although the United States has made great strides toward respecting each individual’s rights regardless of race, sex, age, or sexual preference, some individuals face growing threats to their interests in some jurisdictions. Those facing more limits today include smokers, builders and buyers of affordable housing, aspiring professionals wanting to ply a trade without paying onerous examination and education costs, and less-skilled workers priced out of the market by minimum-wage laws. Moreover, although the rights of some have increased significantly in certain areas, for the average American, freedom has declined generally because of federal policy that includes encroachment on policies that states controlled 20 years ago.

For more information, here’s how the states rank for economic freedom.

And here are the rankings for personal freedom.

Let’s look at the some other tables.

Since I’m most interested in fiscal policy, I’m reflexively drawn to Table 7. Kudos to Florida, Tennessee, New Hampshire, and South Dakota (the absence of a state income tax really helps). And I’m surprised to see Massachusetts in the top 10 (it helps to a have a flat tax).

For what it’s worth, Hawaii really stinks. And I’m not surprised to see New York next to last.

Here’s a look at how states have changed since 2000.

No big surprises, though it’s interesting to note that North Dakota (which was ranked #1 back in 2013) has suffered a relative decline (now ranked #15) simply because its improvement has been rather modest compared to the big improvements in other states.

P.S. For those interested in methodological issues, here’s a look at the formula used to determine which states have the most freedom and least freedom.

P.P.S. If you look at the weighting for personal freedom, you’ll find that educational freedom is 2 percent of a state’s score. Given the importance of school choice (for both individual education outcomes and national economic competitiveness), I wonder if that variable is insufficiently appreciated.

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Net Neutrality and a Lesson about Regulation

If you’re a policy wonk, you’ll enjoy this history of how government regulation has hindered the development of telecommunications technology.

I want to focus on the part of the video, beginning about 30:00, which discusses “net neutrality.” The interview with Professor Hazlett took place in 2017, at a time when there was lots of fighting over this issue.

The pro-regulation crowd claimed that net neutrality was needed to protect consumers from slow and expensive service. And they made all sorts of ridiculous claims about the Trump Administration’s plans to get rid of the Obama-era regulation.

At the time, this tweet from the Democratic members of the U.S. Senate got a lot of attention.

So what actually happened after net neutrality was repealed?

I suppose the first question to answer is:

Did..

…the…

…Internet…

…slow…

…to…

…a…

…crawl?

Not exactly. Robby Soave gives us the details in a column for Reason. He starts with some background information.

Exactly four years ago, the Federal Communications Commission (FCC) repealed the internet regulation known as net neutrality, which had forced internet service providers (ISPs) to treat all content identically in terms of download and streaming speeds, for instance. Since the popular policy had come into existence during the Obama administration, and was gutted during President Donald Trump’s term, its demise was treated as the end of the internet as we know it by panic-stricken #resistance liberals. …The term net neutrality was coined by law professor Tim Wu in 2006; his big idea was that the government needed the power to restrict ISPs’ ability to offer different levels of service to different customers. …Wu cautioned that without rules requiring internet service providers to treat all traffic and content equally, the internet as we had come to know it would cease to exist.”

And here are the results.

Today, the internet is still here, and still functioning properly. Expectations that ISPs would practice widespread and improper discrimination did not pan out. On the contrary, the internet is better and faster for basically everybody than it was when net neutrality ended—in fact, it’s better and faster than at any point in the past. …Foes of net neutrality were clearly correct that the internet didn’t need the government to save it, and absent federal direction and regulation, everything is fine.

The moral of the story is that we experienced a major test of regulation vs. deregulation. And we’ve learned that the advocates of red tape were wildly wrong and the supporters of free enterprise were exactly right.

That’s a lesson we can apply to all sorts of other issues involving government intervention (housing subsidies, financial markets, fisheries, organ transplants, labor markets, etc, etc).

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So-Called Employment Protection Legislation Is Bad for Workers

Tax issues such as depreciation, net operating losses, worldwide taxation, and carry forwards probably set the record for inducing boredom, but I suspect most people also have little interest in a workforce issue known as “employment protection.”

But they should.

Job creation and wage levels can be adversely affected when politicians impose laws and regulations that sound nice, but have the unintended consequence of increasing the cost of employing people.

The good news is that this is an area where the United States gets a high score.

As shown in the chart, America is behind only Denmark in having a deregulated market for matters such as hiring, firing, and compensation.

Today, we’re going to examine some research about the impact of government intervention in labor markets.

Here are some excerpts from a new working paper for the European Central Bank, authored by Gerhard Rünstler, that looks at the impact of labor market deregulation in eurozone nations over the past 20-plus years.

This paper uses a narrative panel VAR to estimate the macro-economic effects of reforms in the euro area in between 1998 Q1 and 2018 Q4. …The narrative VAR finds that unemployment benefit reforms lead to a relatively quick increase in employment and a moderate decline in the real wage. In the medium term, the effect on employment remains, while real compensation reverts back to baseline. The responses to reforms of regular contract EPL are similar, but the response of employment builds up gradually and reaches its full scale only after about six years. …the effects of EPL reforms depend on the state of the business cycle: in states of low growth the response of real activity and employment is more delayed. Some of the reforms had sizeable medium-term effects. In particular, the German Hartz reforms and EPL reforms in Portugal after 2007 altogether raised GDP and employment by above 2% in these countries. Reforms in the Netherlands, Italy, and Spain had smaller but still significant effects.

Here are some of the statistical estimates from the study, starting with a look at relaxing employment protection legislation.

Output and employment increase, which is good news, but the most important finding is an increase in long-run compensation.

Here’s a look at what happens if the law is changed to reduce subsidies for joblessness.

Unsurprisingly, there’s more output and more employment (a lesson we’ve learned in the United States).

I’ll include one final graphic from the study.

Figure 5 shows that the benefits may be larger, or materialize more quickly, depending on the economy’s underlying health.

The bottom line is that it is always a good idea to reduce government intervention in labor markets. If you want more jobs and higher pay, deregulate when the economy is weak and deregulate when the economy is strong.

By the way, the European Central Bank is not the only international organization to reach this conclusion.

I also want to share some passages from last year’s Doing Business report from the World Bank.

…firms should…be free to conduct their business in the most efficient way possible. When labor regulation is too cumbersome for the private sector, economies experience higher unemployment—most pronounced among youth and female workers. …Flexible labor regulation provides workers with the opportunity to choose their jobs and working hours more freely, which in turn increases labor force participation. …For example, if France were to attain the same degree of labor market flexibility as the United States, its employment rate would rise by 1.6 percentage points, or 14% of the employment gap between the two countries. When Sweden increased labor market flexibility, by giving firms with fewer than 11 employees the freedom to exempt two workers from their priority list, labor productivity in small firms increased 2–3% more than it did at larger firms. …Many high- and upper-middle-income economies, including Denmark…and the United States, have flexible labor regulation. In other advanced economies, including Luxembourg, Slovenia, and Spain, strict labor rules make the process of hiring employees arduous. Research shows that strict employment protection legislation shapes firms’ incentives to enter and exit the economy, which in turn has implications for job creation and economic growth. …When faced with rigid employment protection laws, firms lose the freedom to conduct business efficiently. …A firm’s ability to adjust to shocks is adversely affected by rigid labor regulation. Moreover, firms invest less in new product creation in such an environment.

The moral of the story is that when politicians impose laws to “protect” workers, they’re actually making it less likely that businesses will hire workers.

P.S. This cartoon aptly captures what happens when well-intentioned people expand government (by the way, most politicians are not well-intentioned).

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Defend Vaping, Save Lives

Competent and honest people in the world of public policy understand that decisions have costs and benefits.

Simply stated, there is no such thing as a free lunch, though politicians like to pretend otherwise (to cite an especially absurd example, the Biden Administration is actually claiming that a multi-trillion dollar expansion of the welfare state has “zero cost”).

One of the more perverse examples of free-lunch thinking is the campaign in Washington against the use of electronic cigarettes (usually referred to as vaping).

Rational and sensible people understand that vaping has big benefits (regular cigarettes are a far more dangerous way of enjoying nicotine), while also recognizing potential costs (some people who would not become smokers might choose to vape).

Sadly, both politicians and bureaucrats myopically fixate on the potential costs while paying little or no attention to the tangible benefits.

Regarding politicians, Alan Viard of the American Enterprise Institute criticizes Democrats in the House of Representatives for pushing a tax on vaping.

The proposal would apply the federal tobacco tax to e-cigarettes for the first time. (The tobacco tax rate would also be doubled). Under the proposal, e-cigarettes would be taxed based on their nicotine content. Linking the tax to nicotine is misplaced… As Satel has commented, “The virtue of vaping is that it uncouples deadly smoke from nicotine, which, contrary to common impression, has no appreciable role in causing cancer.” …e-cigarettes offer a life-saving alternative to cigarettes, enabling smokers to more easily quit their deadly habit. …two academic research studies…found that e-cigarette taxes have increased cigarette smoking. Another recent study, which was funded by the National Institutes of Health, similarly found that “higher e-cigarette tax rates increase traditional cigarette use.” …Taxes should reduce smoking, not increase it. E-cigarette taxes pose a threat to public health.

Regarding bureaucrats, Jacob Sullum explains for Reason that the notoriously incompetent Food and Drug Administration is strangling the e-cigarette industry with red tape.

Electronic cigarettes, which deliver nicotine without tobacco or combustion, are the most important harm-reducing alternative to smoking ever developed, one that could prevent millions of premature deaths in the United States alone. Yet bureaucrats and politicians seem determined to negate that historic opportunity through regulations and taxes that threaten to cripple the industry. …the Food and Drug Administration (FDA)…says…every vaping device and nicotine liquid sold in the U.S. is “marketed unlawfully” and “subject to enforcement action at the FDA’s discretion.” …it is not enough for a manufacturer to show its products are far less hazardous than conventional cigarettes. Nor is it enough to show that nontobacco flavors are enormously popular among former smokers, because the FDA might still conclude, however implausibly, that the risk of underage consumption outweighs the welfare of smokers interested in making the potentially lifesaving switch to vaping. …The folly of the obsession with preventing underage vaping was apparent in San Francisco, where a ban on flavored ENDS seems to have boosted smoking by teenagers and young adults.

By the way, this is a global issue.

As you might predict, the notoriously incompetent World Health Organization is on the wrong side.

In a column for CapX, Mark Oates explains how that bureaucracy needs to be slapped down.

The World Health Organisation has once again defied scientific advice by baldly stating that ‘E-cigarettes are not proven cessation aids’. The WHO’s stance flies in the face of all the available evidence. …with around 7 million people dying every year due to smoking-related illnesses, getting policy right in this area could have a huge impact. …we appear to be fighting a losing battle against an international consensus to over-regulate or even ban vaping products which are proven to be the most successful and popular quitting aids available.

And some nations are imposing anti-science policies.

In a column for the Sydney Morning Herald, Alex Wodak and Colin Mendelsohn explain that Australia is about to make a big mistake.

Every year, 21,000 Australians die prematurely from smoking cigarettes. That is more deaths than from alcohol, plus prescription drugs, plus illicit drugs, plus road crash deaths, plus HIV, plus suicide. Governments have moral and health obligations to reduce smoking-related deaths by adopting policies that minimise the harm caused by the inhalation of tobacco smoke. …Currently Australians can import nicotine liquid for vaping from overseas or purchase it from a small number of participating pharmacies… From October 1, importation of nicotine liquid will be closely monitored by the Australian Border Force. …the problem is that in Australia, nicotine for vaping is treated as a medicine regulated by the Therapeutic Goods Administration, or TGA. The TGA includes nicotine liquid for vaping in the Poisons Standard while explicitly excluding cigarettes. The net effect is that a much less dangerous way of consuming nicotine is highly restricted while cigarettes, responsible for the deaths of up to two of every three long-term smokers, are readily available from 20,000 outlets.

I’ll close by reiterating that vaping should be defended because it saves lives.

From a cost-benefit perspective, people who want nicotine definitely should vape rather than smoke.

But I also can’t resist making a liberty argument.

Even if vaping was dangerous, it should still be legal. Adults should be free to make choices about the risks they incur.

That means they should be allowed to engage in all sorts of risky behaviors, such as parachuting, eating unhealthy food, hang gliding, smoking, and scuba diving.

And they also should be free to engage in not-so-risky behaviors, such as vaping.

P.S. The vaping tax is a blatant violation of Biden’s promise not to impose taxes on people making less than $400,000 per year, though I imagine nobody is surprised that he was lying (a bipartisan problem in Washington).

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Thomas Sowell, Cost-Benefit Analysis, and the Limits of Regulation

Thomas Sowell is a great economist, but his expertise extends to other fields of study. Everything from history to education.

But he’s also famous for being a great communicator, with dozens of well-known quotes.

I use one of them on my rotating banner because it succinctly summarizes why the left has to rely on emotional appeals rather than rigorous evidence.

For purposes of today’s column, I want to cite one of his other quotes, this one dealing with the fact that tradeoffs are an inevitable reality.

Simply stated, if you want more of one thing, you have to accept less of another thing.

And this has important implications for regulatory policy – especially about the value of cost-benefit analysis.

Let’s look at two examples.

First, here’s the abstract from a study by Jordan Nickerson from MIT and David Solomon from Boston College.

Since 1977, U.S. states have passed laws steadily raising the age for which a child must ride in a car safety seat. These laws significantly raise the cost of having a third child, as many regular–sized cars cannot fit three child seats in the back. Using census data and state–year variation in laws, we estimate that when women have two children of ages requiring mandated car seats,they have a lower annual probability of giving birth by 0.73 percentage points. Consistent with a causal channel, this effect is limited to third child births, is concentrated in households with access to a car, and is larger when a male is present (when both front seats are likely to be occupied). We estimate that these laws prevented only 57 car crash fatalities of children nationwide in 2017. Simultaneously, they led to a permanent reduction of approximately 8,000 births in the same year, and 145,000 fewer births since 1980, with 90% of this decline being since 2000.

This raises all sorts of challenging questions, such as what’s the value of a life saved compared to the value of lives that might have existed (a philosopher might have a different answer than an actuary at the Social Security Administration!).

And let’s not forget that you seemingly could save more lives if there were mandatory 5-mph speed limits, but that policy also has tradeoffs that could produce more deaths elsewhere.

For what it’s worth, I think parents should get to decide whether they need a car seat for a 7-year old (and thus have more children), but I’m not going to pretend there are no negative consequences.

Let’s look at another example.

In a post for Marginal Revolution, Prof. Alex Tabarrok of George Mason University points out that you can save lives in India by selling cars with abysmally low safety ratings.

These cars are very inexpensive. A Renault Kwid, for example, can be had for under $4000. In the Indian market these cars are competing against motorcycles. Only 6 percent of Indian households own a car but 47% own a motorcycle. Overall, there are more than five times as many motorcycles as cars in India. Motorcycles are also much more dangerous than cars. …The GNCAP worries that some Indian cars don’t have airbags but forgets that no Indian motorcycles have airbags. Even a zero-star car is much safer than a motorcycle. Air bags cost about $200-$400…and are not terribly effective. (Levitt and Porter, for example, calculated that air bags saved 550 lives in 1997 compared to 15,000 lives saved by seatbelts.) At $250, airbags would increase the cost of a $5,000 car by 5%. A higher price for automobiles would reduce the number of relatively safe automobiles and increase the number of relatively dangerous motorcycles and thus an air bag requirement could result in more traffic fatalities.

Unlike the issue of car seats for kids, there’s no moral ambiguity on this topic.

Indians should be allowed to buy “unsafe” cars because there will be far fewer fatalities and serious injuries.

By the way, cost-benefit analysis is not a panacea. Benjamin Zycher of the American Enterprise Institute wrote a few years ago that such analysis can be counterproductive if you have a biased and ideologically driven bureaucracy such as the Environmental Protection Agency.

But even halfway competent and fair cost-benefit analysis would be very helpful in the world of public policy.

• It would tell us that it makes no sense to raise tax rates to the point where governments collect little or no revenue.
• It would tell us that the negative effects of drug prohibition are likely greater than the negative effects of legalization.
• It would tell us anti-money laundering policies are far more likely to hurt poor people rather than to catch criminals.

Then again, politicians and bureaucrats probably have incentives to not produce that kind of information..

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America’s Labor Laws Are (Relatively Speaking) Great for Workers

In my fantasy country of Libertaria, there is no Department of Labor, no regulation of employment contracts between consenting adults, and no favoritism for either labor or management.

In the real world, the relevant question is the degree of regulation and intervention. Especially compared to other nations, which is why the the Employment Flexibility Index is a useful measuring stick.

The Employment Flexibility Index is a quantitative comparison of regulatory policies on employment regulation in EU and OECD countries. …Higher values of the Employment Flexibility Index reflect more flexible labor regulations.

The good news, for American workers and American companies, is that the United States has the second-best system among developed nations, trailing only Denmark (another reason why pro-market people should appreciate that Scandinavian nation).

It’s hardly a surprise that France is in last place, notwithstanding President Macron’s attempt to push policy in the right direction.

It’s worth noting that the United States has much less regulation of labor markets than the average European nation. Which may help to explain why American living standards are so much higher.

Let’s review some academic research on the issue of employment regulation.

In an article for the Harvard Journal of Law & Public Policy, Professor Gail Heriot of the University of San Diego Law School explains how regulations discourage job creation and also may encourage discrimination.

… there’s a demographic out there that we ought to be worrying about, it is young people, the perennial newcomers to the economy. Well-meaning employment laws primarily benefit those who already have jobs, often at the expense of those who do not. …For low-skilled young people trying to get their first jobs, the most immediate threat may be the steep minimum wage hikes adopted recently in various cities.…young people even with great educational credentials are unknown quantities to employers and, hence, risky to hire, especially in a legal environment in which employee terminations can lead to costly legal disputes. …he best way for employers to avoid being wrongly accused of a Title VII violation is to avoid hiring someone who could turn out to be litigious if things do not work out. That creates a perverse incentive to avoid hiring the first African American or the first woman in a particular business or department. …A law that was intended to end discrimination in hiring, thus, ends up encouraging it instead.

In a Cambridge University working paper, Maarten de Ridder and Damjan Pfajfar found that wage rigidities, which are driven in part by red tape, are correlated with greater levels of economic damage when there is an adverse policy shock.

We find considerable variation in downward nominal wage rigidities across states and over time. Our estimates of nominal rigidities are positively related to state minimum wages, unionization,union bargaining power, and the size of services and government in employment and negatively to labor mobility. …We therefore focus on nominal wage rigidities when assessing the transmission of policy shocks. We find that states with greater downward nominal wage rigidities experience larger and more persistent increases in unemployment and declines in output after monetary policy shocks. …Similar results also hold for exogenous changes in taxes… States with higher nominal rigidities experience larger increases in unemployment and declines in output after a tax increase compared to states that are more flexible. We further show that institutional factors that could drive wage rigidities—like minimum wages and right-to-work-legislation—have a similar effect. States with a higher minimum to median wage ratio and those without right-to-work legislation experience larger and more persistent effects of monetary and tax policy shocks. Combined, these results firmly corroborate the hypothesis that resistance to wage cuts deepens policy shocks.

And in an article for Regulation, Warren Meyer explains that red tape and intervention is particularly bad news for unskilled workers.

The government makes it too difficult, in far too many ways, to try to make a living employing unskilled workers. …In the 1950s, 1960s, and 1970s, there was a wave of successful large businesses built on unskilled labor (e.g., ServiceMaster, Walmart, McDonalds). Today, investment capital and innovation attention is all going to companies that create large revenues per employee with workers who have college educations and advanced skills. …the mass of government labor regulation is making it harder and harder to create profitable business models that employ unskilled labor. For those without the interest or ability to get a college degree, the avoidance of the unskilled by employers is undermining those workers’ bridge to future success

Let’s close by looking at a chart from a 2018 presentation by Martin Agerup.

He shows that red tape doesn’t even provide meaningful job security for those who are already employed.

The bottom line is that so-called employment protection legislation is very bad news for those who are looking for jobs while offering no measurable benefit for those who have jobs (especially if we compare living standards across nations).

If we want more jobs, the best prescription is less government.

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