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Posts Tagged ‘Regulation’

When I write about the actions of state governments, it’s usually to highlight a specific bad policy. As you can imagine, states like California, Connecticut, Illinois, New York, and New Jersey give me a never-ending amount of material.

But I frequently run across things that are happening in the states that don’t really merit an entire column, but they nonetheless are worthy of attention since they symbolize the venality and incompetence of politicians.

So I’ve decided that it’s time for a series on “great moments in state government” to augment my already well-developed series on “great moments in local government.”

Let’s start by looking at a truly bizarre example of occupational licensing from Tennessee.

A decade ago, Martha Stowe founded True Equine, an equine-services company, a few miles south of Nashville, Tenn., in Williamson County. After earning a certificate in equine myofascial release, a massage technique that releases tension and pain in a horse’s body, Martha soon acquired a large clientele. …In April 2016, however, Stowe’s well-established business was upended when she received a threatening letter from the Board of Veterinary Medical Examiners, a board within Tennessee’s Department of Health. Only licensed veterinarians are permitted to massage horses, the board’s attorney explained, and if Stowe continued to practice myofascial release, she could be fined up to $500 and receive a six-month jail sentence. …The board also sent the letter to fellow Williamson County resident Laurie Wheeler, a professional jazz musician and licensed massage therapist who, like Stowe, is certified in equine myofascial release. …Upon receiving the veterinary board’s letter, Wheeler was stunned — after all, she was certified, and not only that, she had never even accepted money for her services. But, she says, the government threatened to “fine me and put me in jail for voluntarily working on animals.” For Wheeler, helping horses is more than a volunteer position or an occupation; it’s a call to duty.

But there is some good news.

A pro-market think tank is helping the women fight back.

Both women disregarded the veterinary board’s warnings and subsequently looked to the Beacon Center of Tennessee, a free-market think tank, for legal representation. According to Braden Boucek, director of litigation for the Beacon Center, the board’s decision to allow only licensed veterinarians to massage horses is a violation of the U.S. Constitution’s equal-protection clause. Moreover, because the Constitution protects private property, which in turn protects the right to acquire property and the right to earn a living, the board’s decision violates the 14th Amendment. …Threatening to jail an individual for massaging a horse is absurd. These women aren’t giving medical advice to owners, or surgically operating on horses, or doing anything that only a licensed veterinarian could do. Remember, this kind of massage is not even taught in veterinary school. Under Tennessee’s logic, why shouldn’t massage therapists who practice exclusively on people be required to hold a medical degree? The veterinary board ought to take the necessary steps to begin updating this illogical statute. If it doesn’t, it will need to explain in court why it’s permissible to deprive Stowe and Wheeler of their fundamental constitutional rights.

Amen. I admire Tennessee for not having an income tax. It’s time, though, for the Volunteer State to extend economic freedom to horse masseurs.

Now let’s shift to Wisconsin, where we have another example of cronyism.

State lawmakers may be brave when it comes to curtailing special privileges for government employees, but they like special protections for private industry.

Wisconsin state regulators…[are]…banning state grocery stores from selling one of the Emerald Isle’s most popular (and tasty) products: Kerrygold butter. Never mind that Wisconsinites have been buying Kerrygold for years with no problems. Or that it remains legal in the 49 other states. Badger State bureaucrats, trying to protect the state dairy industry, are suddenly enforcing a 1970 law that requires all butter sold in the state to go through a complicated evaluation by a state panel. This is the same state that once banned margarine because it was a competitive threat to local dairies. …as a result of the ban, Kerrygold-loving Wisconsinites have been forced to make butter runs across the state border, bringing back suitcases stuffed with the import. In Ireland, meanwhile, the ban is leading to headlines such as this in the Irish Mirror: “Shopkeepers in Wisconsin could face JAIL if they sell Kerrygold butter.”

Maybe butter consumers in Wisconsin can fly to Norway and learn how to get around misguided policies that make butter a black-market commodity.

Remember, if you outlaw butter, only outlaws will have butter.

Now let’s look at some onerous government intervention in my state of Virginia. And this one is personal since I don’t like the hassle of annual vehicle inspections.

…my annual Virginia motor vehicle safety inspection was due in a month. I knew my car wouldn’t pass and that I wouldn’t be allowed to stay on the road with that light on. Never mind that the light has nothing to do with the safe operation of the vehicle. And also never mind that in a 2015 study the Government Accountability Office “examined the effect of inspection programs on crash rates related to vehicle component failure, but showed no clear influence.” AAA Public Affairs Vice President Mike Wright said, “Nobody can prove with any degree of certainty that spending the money, suffering the inconvenience of getting your vehicle inspected, actually produces desired results.” …Virginia has a personal vehicle safety program overseen by the state police that cannot be shown to enhance public safety. The people who perform inspections are often the same people who fix any identified deficiencies. …A government program that requires the purchase of a good or service in return for a nonexistent public benefit is illiberal and anti-consumer. Two-thirds of states see no need to impose the burden of annual personal vehicle safety inspections on their citizens; Virginia should end its inspection requirement.

For what it’s worth, the People’s Republic of the District of Columbia doesn’t have this requirement. Kind of embarrassing that Virginia is more interventionist.

Our final example come from Illinois, where a local newspaper has a superb editorial on a sordid example of wasteful sleaze in the state budget.

Let’s eliminate the Illinois Arts Council Agency from the state budget. They must have taken lessons on government efficiency from our local townships, spending $1 million on staff and overhead in 2016 to hand out $834,900 in grants. The council is chaired by Shirley Madigan, who has been in that position since 1983. Funny, her husband, Mike, has been Illinois House Speaker since then, too. …guess who gets the money? Their well-heeled friends. Madigan’s alma mater received $95,100, another board member’s employer received $165,650 and yet another board member’s pet opera company received $503,000. Surprise! …Illinois Gov. Bruce Rauner has an opportunity to let someone else be a matron of the arts and appoint a majority of board members dedicated to either eliminating the council or at least making it a transparent organization that helps local artists rather than makes your taxes a minor revenue source for well-connected, large arts institutions.

Needless to say, the first option (eliminating the council) is the superior choice, just like we should shut down the National Endowment for the Arts in D.C.

But let’s set that aside. I’m still scratching my head about a bureaucracy that spends $1 million to give away $834.9 thousand. Though that’s actually efficient if you compare it with the German tax that resulted in €30 euros of government expense for every €1 collected.

To conclude, there’s a common thread in these four stories. In each case, politicians at the state level have policies to enable unearned wealth to flow to the pockets of their friends and allies.

In other words, the First Theorem of Government doesn’t just apply to what’s happening in Washington.

P.S. I’ve only had a few previous “great moments” for state governments. One from Florida involved a felony arrest of some luckless guy who was simply trying to impress his girlfriend by releasing some balloons, and the other from Virginia involved three misdemeanors for the horrid crime of rescuing a wounded deer.

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Thanks to decades of experience and research, we now know several things about so-called anti-money laundering (AML) laws.

It’s not that the theory behind these laws is without merit. The original notion was that perhaps we could reduce crime by figuring out ways to prevent crooks from utilizing the banking system. That’s a worthy goal. But it turns out that it doesn’t work.

For all intents and purposes, AML laws are a misallocation of law-enforcement resources.

So you would think that policy makers would be endeavoring to repeal these counterproductive rules and regulations, right?

But you would be wrong. Some of them actually want to double down on failure. To be more specific, four senators have introduced a bill to make these laws more intrusive and onerous.

Senate Judiciary Committee Chairman Chuck Grassley and Ranking Member Dianne Feinstein, along with Senators John Cornyn and Sheldon Whitehouse, today introduced legislation that modernizes and strengthens criminal laws against money laundering – a critical source of funding for terrorist organizations, drug cartels and other organized crime syndicates.  The Combating Money Laundering, Terrorist Financing, and Counterfeiting Act of 2017 updates criminal money laundering and counterfeiting statutes, and promotes transparency in the U.S. financial system.

It’s quite possible that these politicians actually think this new law will somehow reduce all the bad things they put in the bill’s title (I’m surprised they didn’t add tooth decay and cancer to the list).

But if past experience is any guide, the real-world result will be more abuse of law-abiding citizens.

Writing for the Blaze, Justin Haskins warns how the new legislation can endanger innocent people.

Four U.S. senators have proposed legislation that would significantly expand the power of the federal government to seize citizens’ money when traveling in or out of the United States. …several troubling provisions in the law could put law-abiding American citizens at risk of losing tens of thousands of dollars for doing nothing more than failing to fill out a government form. Under current federal law, travelers transporting $10,000 or more in cash or other monetary instruments are required to report those funds to U.S. Customs and Border Protection. Failure to report funds, even if unintentional, can lead to the seizure of the money and criminal or civil penalties.

That approach already produces horrible abuses of innocent people.

And imagine what will happen if this new law is enacted.

The Combating Money Laundering, Terrorist Financing and Counterfeiting Act would expand “monetary instruments” covered under current law to include “prepaid access devices, stored value cards, digital currencies, and other similar instruments.” This is particularly problematic because digital currencies, such as Bitcoin, are theoretically always transported by the owner of the digital currency account wherever he or she goes, which means digital currency owners with accounts valued at $10,000 or more must always report their funds or risk having them seized. Even more troubling is the law treats all blank checks as though they are financial instruments valued in excess of $10,000 if the checking account contains at least $10,000, which means if a traveler accidently fails to report a blank check floating around in his or her luggage, the account holder could face stiff penalties — even if there is no suspicion of criminal activity.

Some of you may be thinking that it’s okay to subject innocent people to abuse if it achieves a very important goal of stopping terrorists.

But that’s not happening. In a must-read article for Foreign Affairs, Peter Neumann points out that AML laws are grossly ineffective in the fight against Islamo-fascism.

…the war on terrorist financing has failed. Today, there are more terrorist organizations, with more money, than ever before. …Driven by the assumption that terrorism costs money, governments have for years sought to cut off terrorists’ access to the global financial system. They have introduced blacklists, frozen assets, and imposed countless regulations designed to prevent terrorist financing, costing the public and private sectors billions of dollars.

And what’s the result of all this expense?

It hasn’t stopped terrorism.

…there is no evidence that it has ever thwarted a terrorist campaign. Most attacks require very little money, and terrorists tend to use a wide range of money-transfer and fundraising methods, many of which avoid the international financial system. …Terrorist operations are cheap, and according to a 2015 study by the Norwegian Defense Research Establishment, over 90 percent of the jihadist cells in Europe between 1994 and 2013 were “self-funded,” typically through savings, welfare payments, personal loans, or the proceeds of petty crime. …many jihadists have used their own savings and welfare payments or taken out small loans; others have borrowed money from their friends or family. …Financial tools cannot stop lone attackers from driving cars into crowds.

But it has imposed major burdens on innocent parties.

…the focus on the financial sector proved ineffective; it has also harmed innocent people and businesses. To address policymakers’ demands, financial institutions have “de-risked” their portfolios, shedding investments and clients that might be linked to terrorist financing. …De-risking, moreover, has resulted in the de facto exclusion of entire countries, mostly poor ones such as Afghanistan and Somalia, from the global financial system. The bank accounts of refugees, charities that operate in regions torn apart by civil war, and even Western citizens with family links to so-called risk countries have been closed. Practically no Western bank now offers cash transfers to Somalia, for example, although 40 percent of the population depends on remittances from abroad.

And what is the author’s bottom line?

Simply stated, the current system is a failure.

Instead of continuing to look for needles in a haystack, governments should overhaul their approach to countering terrorist funding… Otherwise, they will waste time and money on a strategy that cannot deliver security for many more years to come. .. Policymakers need to acknowledge that the war on terrorist financing, as it has been conducted since 2001, has often been costly and counterproductive, harming innocent people and companies without significantly constraining terrorist groups’ ability to operate.

I agree.

Indeed, I wrote an article for Pace Law Review, published back in 2005, that made many of the same points, including a lot of attention on theoretical role of cost-benefit analysis.

Law enforcement policy should include cost/benefit analysis so that resources are best allocated to protect life, liberty, and property. This should not be a controversial proposition. Cost-benefit analysis…already is part of the public policy process. For instance, few people would think it is acceptable for a city of 10 million to have just one police officer. Yet it is also true that few would want that city to have five million police officers. In other words, there is a point where additional law enforcement expenditures – both public and private – exceed the likely benefits. Every government makes such decisions. Cost-benefit analysis applies to aggregate resource allocation choices, such as how many police officers to employ in a city, but also to how a given level of resources are utilized. In other words, since there are not unlimited resources, it makes sense to allocate those resources in ways that yield the greatest benefit. On a practical level, city officials must decide how many officers to put on each shift, how many officers to assign to different neighborhoods, and how many officers to allocate to each type of crime. The same issues apply in the war against terrorism. Officials must decide not only on the level of resources devoted to fighting terrorism, but they also must make allocation decisions between, say, human intelligence and electronic surveillance.

Now let’s shift from theory to evidence.

I argued AML laws didn’t pass the test.

…while anti-money laundering laws theoretically help the war against terror, this does not mean that they necessarily are justified by cost-benefit analysis. A…book from the Institute for International Economics…strongly supports anti-money laundering laws and advocates their expansion. But the authors admit that these laws imposed costs of $7 billion in 2003, yet they admitted that, “While the number of suspicious activity reports filed has risen rapidly in recent years…total seizures and forfeitures amount to an extremely small sum (approximately $700 million annually in the United States) when compared with the crude estimates of the total amounts laundered. Moreover, there has not been an increase in the number of federal convictions for money laundering.” The private sector bears most of the cost of anti-money laundering laws, but the authors also note that, “Budgetary costs for AML laws have tripled in the last 20 years for prevention and quadrupled for enforcement.” The key question, of course, is whether these costs are matched by concomitant benefits. The answer almost certainly is no. …the government seizes very little dirty money. There are only about 2,000 convictions for federal money laundering offenses each year, and that number falls by more than 50 percent not counting cases where money laundering was an add-on charge to another offense.

Let’s close with passages from a couple of additional articles.

First, Richard Rahn explains why all anti-money laundering laws are misguided in a very recent column for the Washington Times.

…what is even more shocking is the extent to which various government organizations monitor and, in many cases, restrict financial freedom, and seize assets without criminal conviction. …The government argues that it must collect financial data and then share it with many domestic and foreign government organizations in order to stop tax evasion, money laundering, drug dealing, other assorted criminality, and terrorist finance — all of which sounds good at first glance, until one looks at what really happens. If you think that the war on drugs has been a failure, look at the war on money laundering, tax evasion and terrorist finance for an even bigger failure. …money laundering is a crime of intent, rather than actions, in which two different people can engage in the same set of financial transactions, but if one has criminal intent he or she can be charged while the other person is home free. Such vague law is both ripe with abuse and difficult to prove. …The financial information that government agencies now routinely collect is widely shared, not only with other domestic government agencies, but increasingly with foreign governments — many of which do not protect individual liberty and other basic rights.

And here are some excerpts from a column in Reason by Elizabeth Nolan Brown.

American and British banks are monitoring customers’ contraception purchases, DVD-rental frequency, dining-out habits, and more in a misguided attempt to detect human traffickers… Their intrusive and ineffective efforts come at the behest of government agencies, who have been eager to use asset-forfeiture powers… The U.S. and U.K. banks RUSI researchers interviewed said they were happy to help law enforcement prosecute human traffickers and had little problems turning over financial records for people already arrested or under investigation. But proactively finding potential traffickers themselves proved more difficult. As RUSI explains, “the often unremarkable nature of transactions related to” human trafficking made finding criminals or victims via transaction monitoring a time-consuming and unfruitful endeavor. Yet financial institutions are boxed in by regulations that threaten to punish them severely should they participate in the flow of illegally begotten money, however unwittingly. The bind leaves banks and other financial services eager to cast as wide a net as possible, terminating relationships with “suspicious” customers, monitoring the bank accounts of people they know, or turning their records over to law enforcement rather than risk allegations of not doing enough to comply.

In other words, these laws are a costly – but ineffective – burden.

Which is what I said in this video for the Center for Freedom and Prosperity.

P.S. In closing, I should point out that statists frequently demagogue against so-called tax havens for supposedly being hotbeds of dirty money, but take a look at this map put together by the Institute of Governance and you’ll find only one low-tax jurisdiction among the 28 nations listed.

Even the State Department’s most recent list of vulnerable jurisdictions shows only a handful of international financial centers.

Yes, places Cayman and Bermuda are on the list, but so are countries such as Canada, China, India, Italy, Netherlands, Russia, and the United Kingdom. In other words, it’s basically a random list of jurisdictions rather than a helpful guide.

P.P.S. You probably didn’t realize you could make a joke involving money laundering, but here’s one starring President Obama.

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When I write about regulation, I usually focus on big-picture issues involving economic costs, living standards, and competitiveness.

Those are very important concerns, but the average person in American probably gets more irked by rules that impact the quality of life.

That’s a grim list, but it’s time to augment it.

Jeffrey Tucker of the Foundation for Economic Education explains that the government also has made showering a less pleasant experience. He starts by expressing envy about Brazilian showers.

…was shocked with delight at the shower in Brazil. …step into the shower and you have a glorious capitalist experience. Hot water, really hot, pours down on you like a mighty and unending waterfall… At least the socialists in Brazil knew better than to destroy such an essential of civilized life.

I know what he’s talking about.

I’m in a hotel (not in Brazil), and my shower this morning was a tedious experience because the water flow was so anemic.

Why would a hotel not want customers to have an enjoyable and quick shower?

The answer is government.

…here we’ve forgotten. We have long lived with regulated showers, plugged up with a stopper imposed by government controls imposed in 1992. There was no public announcement. It just happened gradually. After a few years, you couldn’t buy a decent shower head. They called it a flow restrictor and said it would increase efficiency. By efficiency, the government means “doesn’t work as well as it used to.” …You can see the evidence of the bureaucrat in your shower if you pull off the showerhead and look inside. It has all this complicated stuff inside, whereas it should just be an open hole, you know, so the water could get through. The flow stopper is mandated by the federal government.

The problem isn’t just the water coming out of the showerhead. It’s the water coming into your home.

It’s not just about the showerhead. The water pressure in our homes and apartments has been gradually getting worse for two decades, thanks to EPA mandates on state and local governments. This has meant that even with a good showerhead, the shower is not as good as it might be. It also means that less water is running through our pipes, causing lines to clog and homes to stink just slightly like the sewer. This problem is much more difficult to fix, especially because plumbers are forbidden by law from hacking your water pressure.

So why are politicians and bureaucrats imposing these rules?

Ostensibly for purposes of conservation.

…what about the need to conserve water? Well, the Department of the Interior says that domestic water use, which includes even the water you use on your lawn and flower beds, constitutes a mere 2% of the total, so this unrelenting misery spread by government regulations makes hardly a dent in the whole. In any case, what is the point of some vague sense of “conserving” when the whole purpose of modern appliances and indoor plumbing is to improve our lives and sanitation? (Free societies have a method for knowing how much of something to use or not use; it is called the signaling system of prices.)

Jeffrey is right. If there really is a water shortage (as there sometimes is in parts of the country and world), then prices are the best way of encouraging conservation.

Now let’s dig in the archives of the Wall Street Journal for a 2010 column on the showerhead issue.

Apparently bureaucrats are irked that builders and consumers used multiple showerheads to boost the quality of their daily showers.

Regulators are going after some of the luxury shower fixtures that took off in the housing boom. Many have multiple nozzles, cost thousands of dollars and emit as many as 12 gallons of water a minute. In May, the DOE stunned the plumbing-products industry when it said it would adopt a strict definition of the term “showerhead”… A 1992 federal law says a showerhead can deliver no more than 2.5 gallons per minute at a flowing water pressure of 80 pounds per square inch. For years, the term “showerhead” in federal regulations was understood by many manufacturers to mean a device that directs water onto a bather. Each nozzle in a shower was considered separate and in compliance if it delivered no more than the 2.5-gallon maximum. But in May, the DOE said a “showerhead” may incorporate “one or more sprays, nozzles or openings.” Under the new interpretation, all nozzles would count as a single showerhead and be deemed noncompliant if, taken together, they exceed the 2.5 gallons-a-minute maximum.

And here’s something that’s both amusing and depressing.

The regulations are so crazy that an entrepreneur didn’t think they were real.

Altmans Products, a U.S. unit of Grupo Helvex of Mexico City, says it got a letter from the DOE in January and has stopped selling several popular models, including the Shower Rose, which delivers 12 gallons of water a minute. Pedro Mier, the firm’s vice president, says his customers “just like to feel they’re getting a lot of water.” Until getting the DOE letter, his firm didn’t know U.S. law limited showerhead water usage, Mr. Mier says. “At first, I thought it was a scam.”

Unsurprisingly, California is “leading” the way. Here are some passages from an article in the L.A. Times from almost two years ago.

The flow of water from shower heads and bathroom faucets in California will be sharply reduced under strict new limits approved Wednesday by the state Energy Commission. Current rules, established in 1994 at the federal level, allow a maximum flow of 2.5 gallons per minute from a shower head. Effective next July, the limit will fall to 2.0 gallons per minute and will be reduced again in July 2018, to 1.8 gallons, giving California the toughest standard of any U.S. state.

Though “toughest standard” is the wrong way to describe what’s happening. It’s actually the “worst shower” of any state.

P.S. I forget the quality of shower I experienced in South Korea, but I was very impressed (see postscript) by the toilet.

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My favorite anti-libertarian video is the one based on the notion that Somalia is a libertarian paradise. Since no libertarian has ever pointed to that country as a role model, the underlying premise is a bit silly (I’ve written something semi-favorable about Somaliland, but that’s a different place). However, that doesn’t change the fact that the video is well produced and rather amusing.

It’s now time to share another amusing video with a bad message. It’s not targeting libertarians directly, but it’s mocking an idea that’s being promoted by libertarians such as my colleague Chris Edwards. The video shows a pair of English comedians doing a mock interview back in the 1990s on privatizing the U.K.’s air traffic control system.

Putting millions of passengers at the mercy of a for-profit company? Seems laughably absurd, right?

Except it actually happened. Not only in the United Kingdom, but also in Canada. So advocates of privatization actually got the last laugh.

And we may see similar progress in the United States. Remarkably, even the Washington Post is supporting this reform.

The United States can and should learn from the experience of other Western democracies… Take the prosaic but crucial function of air traffic control. In the United States, that is still a job for big government: specifically, the Federal Aviation Administration. Overseas, however, countries are turning away from this statist model. Canada spun off its system, Nav Canada, in 1996, to a private entity funded by user fees. Britain privatized in 2000. Australia and New Zealand are also part of the movement; ditto Germany and Switzerland… In all of these countries, safety and innovation have stayed the same or improved, which is not surprising.

The editorial urges something similar for America.

A new corporation, funded by charges on the system’s various users, would manage flights and implement the long-stalled modernization. The FAA would still ensure safety, a regulatory job it already does remarkably well and might do even better if it were free to focus on that exclusively. Major players in the industry would share governance of the new entity, working out their differences within its boardroom rather than through the costlier and more conflictual method of lobbying Congress, as they do now.

Wow, the Washington Post is pointing out that a leaner government with fewer responsibilities would be more effective. I hope in the future they apply that lesson on a consistent basis.

Let’s close with a reference to another bit of anti-libertarian humor. Last year, I shared an image showing a satirical box of libertarian cereal, which I freely admitted was very amusing. But I then made the obvious point that private companies have zero incentive to harm or kill their customers.

Moreover, there’s even a system of mutually reinforcing private regulation that further discourages bad or sloppy behavior by companies.

Sot the bottom line is that there are greater incentives for safety with for-profit firms than there are with governments, where it’s just about impossible to fire someone for doing a bad job.

P.S. Since I’m a fiscal wonk, I’ll confess that I also want to privatize air traffic control because I’m still irked that the FAA tried to deliberately and unnecessarily inconvenience travelers during the 2013 sequester. Sort of like the jerks at the National Park Service, who did something similar that year during the partial government shutdown (though at least we got some good humor out of that).

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On major economic issues, it does not appear that Republican control of Washington makes much of a difference.

  • Efforts to repeal Obamacare have bogged down because GOPers are willing to deal with the fiscal wreckage of that law, but don’t seem very comfortable about undoing the interventions and regulations that have caused premiums to skyrocket.
  • Efforts to cut taxes and reform the tax code don’t look very promising because House Republicans have proposed a misguided border-adjustment tax and the White House seems hopelessly divided on how to proceed.
  • Efforts to restrain government spending haven’t gotten off the ground. A full budget is due next month, but it’s not overly encouraging that Trump’s proposed domestic cuts would be used to expand the Pentagon’s budget.

Let’s see whether we get a different story when we examine regulatory issues.

We’ll start with some good news? Well, sort of. It seems the United States has the largest and 4th-largest GDPs in the world.

You may think that makes no sense, but this is where we have to share some bad news on the regulatory burden from the Mercatus Center.

Economic growth has been reduced by an average of 0.8 percent per year from 1980 to 2012 due to regulatory accumulation. Regulations force companies to invest less in activities that enhance productivity and growth, such as research and development, as companies must divert resources into regulatory compliance and similar activities. …Compared to a scenario where regulations are held constant at levels observed in 1980, the study finds that the difference between the economy we are in and a hypothetical economy where regulatory accumulation halted in 1980 is approximately $4 trillion. …The $4 trillion dollars in lost GDP associated with regulatory accumulation would be the fourth largest economy in the world—larger than major countries like Germany, France, and India.

By the way, this data from Mercatus gives me an opportunity to re-emphasize the importance of even small variations in economic growth. It may not make that much difference if the economy grows 0.8 percent faster or slower in one year.

But, as just noted, a loss of 0.8 percent annual growth over 32 years has been enormously expensive to the U.S. economy.

The Competitive Enterprise Institute has a depressing array of data on America’s regulatory burden. Here’s the chart that grabbed my attention.

And here’s a video on the burden of red tape from the folks at CEI.

Who deserves the blame for this nightmare of red tape?

The previous president definitely added to the regulatory morass. The Hill reported last year on a study by the American Action Forum.

The Obama administration issues an average of 81 major rules, those with an economic impact of at least $100 million, on a yearly basis, the study found. That’s about one major rule every four to five days, or, as the American Action Forum puts it, one rule for every three days that the federal government is open. “It is a $2,294 regulatory imposition on every person in the United States,” wrote Sam Batkins, director of regulatory policy at the American Action Forum, who conducted the study.

And there was a big effort to add more red tape in Obama’s final days, as noted by Kimberly Strassel of the Wall Street Journal.

Since the election Mr. Obama has broken with all precedent by issuing rules that would be astonishing at any moment and are downright obnoxious at this point. This past week we learned of several sweeping new rules from the Interior Department and the Environmental Protection Agency, including regs on methane on public lands (cost: $2.4 billion); a new anti-coal rule related to streams ($1.2 billion) and renewable fuel standards ($1.5 billion).

As you might expect, the net cost of Obama’s regulatory excess is significant. Here’s some of what the Washington Examiner wrote during the waning days of Obama’s tenure.

According to new information from the White House, finally released after a two year wait, the total burden of federal government paperwork is more than 11.5 billion man-hours a year. That’s almost 500 million man-days, or 1.3 million man-years. More importantly, it’s 35 hours every person in the country (on average) has to spend doing federal paperwork every year, on average. …Time is money, and paperwork time alone costs the country almost $2 trillion a year, or about 11 percent of GDP.

But it’s not solely Obama’s fault. Not even close.

Both parties can be blamed for this mess, as reported by the Economist.

The call to cut red tape is now an emotive rallying cry for Republicans—more so, in the hearts of many congressmen, than slashing deficits. Deregulation will, they argue, unleash a “confident America” in which businesses thrive and wages soar, leaving economists, with their excuses for the “new normal” of low growth, red-faced. Are they right?

They may be right, but they never seem to take action when they’re in charge.

Between 1970 and 2008 the number of prescriptive words like “shall” or “must” in the code of federal regulations grew from 403,000 to nearly 963,000, or about 15,000 edicts a year… The unyielding growth of rules, then, has persisted through Republican and Democratic administrations… The endless pile-up of regulation enrages businessmen. One in five small firms say it is their biggest problem, according to the National Federation of Independent Business.

Though I would point out that President Reagan was the exception to this dismal rule.

That being said, who cares about finger pointing? What matters is that the economy is being stymied by excessive red tape.

So what can be done about this? President Trump has promised a 2-for-1 deal, saying that his Administration will wipe out two existing regulations for every new rule that gets imposed.

Susan Dudley opines on this proposal, noting that Trump hasn’t put any meat on the bones.

Like pebbles tossed in a stream, each individual regulation may do little economic harm, but eventually the pebbles accumulate and like a dam, may block economic growth and innovation. A policy of removing two regulations for every new one would provide agencies incentives to evaluate the costs and effectiveness of those accumulated regulations and determine which have outlived their usefulness. Mr. Trump’s statement doesn’t provide details on how this new policy would work.

Ms. Dudley points out, however, that other nations have achieved some success with similar-sounding approaches.

…his team could look to experiences in other countries for insights. The Netherlands, Canada, Australia and the United Kingdom have all adopted similar requirements to offset the costs of new regulations by removing or modifying existing rules of comparable or greater effect. …The Netherlands program established a net quantitative burden reduction target that reduced regulatory burdens by 20% between 2003 and 2007. It is currently on track to save €2.5 billion in regulatory burden between 2012 and 2017 by tying the introduction of new regulations “to the revision or scrapping of existing rules.” Under Canada’s “One-for-One Rule,” launched in 2012, new regulatory changes that increase administrative burdens must be offset with equal burden reductions elsewhere. Further, for each new regulation that imposes administrative burden costs, cabinet ministers must remove at least one regulation. Similarly, Australia’s policy is that “the cost burden of new regulation must be fully offset by reductions in existing regulatory burden.” The British began with a “One-in, One-out” policy, requiring any increases in the cost of regulation to be offset by deregulatory measures of at least an equivalent value. In 2013, it moved to “One-in, Two-out” (OITO) and more recently to a “One-in, Three-out” policy in an effort to cut red tape by £10 billion.

The bottom line is that progress will depend on Trump appointing good people. And on that issue, the jury is still out.

The legislative branch also could get involved.

In a column for Reason, Senator Rand Paul explained that the REINS Act could make a big difference.

…13 of the 15 longest registers in American history have been authored by the past two presidential administrations (Barack Obama owns seven of the top eight, with George W. Bush filling in most of the rest)…federal lawmakers should pass something called the REINS Act—the “Regulations from the Executive in Need of Scrutiny Act. The REINS Act would require every new regulation that costs more than $100 million to be approved by Congress. As it is now, agencies can pass those rules unilaterally. Such major rules only account for about 3 percent of annual regulations, but they are the ones that cause the most headaches for individuals and businesses. …the REINS Act did pass the House on four occasions during the Obama administration. Lack of support in the Senate and the threat of a presidential veto kept it from ever reaching Obama’s desk.

But would it make a difference if Congress had to affirm major new rules?

Given how agencies will lie about regulatory burdens, it wouldn’t be a silver bullet.

But,based on the hysterical opposition from the left, I’m betting the REINS Act would be very helpful.

REINS would fundamentally alter the federal government in ways that could hobble federal agencies during periods when the same party controls Congress and the White House — and absolutely cripple those agencies during periods of divided government. Many federal laws delegate authority to agencies to work out the details of how to achieve relatively broad objectives set by the law itself. …REINS, however, effectively strips agencies of much of this authority.

That sounds like good news to me. If the crazies at Think Progress are this upset about the REINS Act, it must be a step in the right direction.

Let’s close with a bit of evidence that maybe, just maybe, Republicans will move the ball in the right direction. Here are some excerpts from a Bloomberg story.

The White House estimates it will save $10 billion over 20 years by having rescinded 11 Obama-era regulations under a relatively obscure 1996 law that lets Congress fast-track repeal legislation with a simple majority. …In all, the law has been used to repeal 11 rules, with two more awaiting the president’s signature… About two dozen measures with CRA’s targeting them remain, but because the law can only be used on rules issued in the final six months of the previous administration, Congress only has only a few more weeks to use the procedure.

Before getting too excited, remember that the annual cost of regulation is about $2 trillion and the White House is bragging about actions that will reduce red tape by $10 billion over two decades. Which means annual savings of only $500 million.

Which, if my math is right, addresses 0.025 percent of the problem.

I’ll take it, but it should be viewed as just a tiny first step on a very long journey.

P.S. The Congressional Review Act was signed into law by Bill Clinton. Yet another bit of evidence that he was a surprisingly pro-market President.

P.P.S. If you want some wonky analysis of regulation, I have some detailed columns here, here, here, here, here, here, and here.

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It’s relatively easy to demonstrate how certain regulations make our lives less pleasant (inferior light bulbs, substandard toilets, inadequate washing machines, crummy dishwashers, etc).

Furthermore, it’s also simple to highlight examples of foolish and preposterous regulations.

And it’s a straightforward exercise (at least conceptually) to argue that regulations should pass some sort of cost-benefit test.

What’s not so easy, however, is getting folks to grasp the overall impact of red tape on growth and living standards. After all, most normal people don’t want to learn about wonky concepts such as the production possibilities frontier. And I also doubt there are many people who are interested in the technical challenge of how to measure the aggregate impact of thousand of rules and restrictions.

But these issues matter. A lot. According to Economic Freedom or the World, the regulatory burden is just as important as the fiscal burden when determining a nation’s competitiveness and economic outlook. Simply stated, our living standards are determined by productivity, which is determined by how wisely labor and capital are combined to generate output.

With this in mind, a new study from the European Central Bank helpfully examines the degree to which regulation hinders the efficient allocation of those factors of production.

The focus of this paper is on the…misallocation of labour and capital in eight macro-sectors (which include manufacturing and services) for five large euro-area countries (Belgium, France, Germany, Italy and Spain) during the period 2002-2012. …The paper then investigates the potential determinants of changes in input misallocation by looking at traditional structural determinants, namely restrictive product and labour market regulations. …regulations that shelter firms from competition might result in poor allocation of resources because low productive firms will keep operating instead of downsizing or exiting. Similarly, stringent labour market regulation, in the form of high hiring and firing costs, might also thwart resource allocation.

For those who are interested in such things, the study looks at what drives improvements in productivity. Is it firms becoming more efficient because of competition, or is “reallocation” as weak companies vanish and dynamic new firms emerge?

The short answer, as illustrated by the table, is that both play a role.

Here are some of the issues considered in the ECB study.

In our full empirical specification, as well as initial conditions in misallocation, …we first examine the role of two structural factors, i.e. changes in both product and labour market regulations. In the presence of high barriers to entry, unproductive firms are able to survive and therefore retain productive resources which are not shifted to the most efficient firms in a given industry (Schiantarelli 2008; Restuccia and Rogerson 2013; Andrews and Cingano 2014). Furthermore, more stringent employment regulation might prevent firms from adjusting their workforce to optimal levels, therefore hampering the efficient reallocation of workers across firms (Haltiwanger, Scarpetta and Schweizer 2014; Bartelsman, Gautier and de Wind 2011). Moreover, in the labour misallocation regressions we also include an interaction term between the changes in product and labour market regulations.

Here are their estimates of both product market regulation and labor market regulation for selected nations.

It’s good to see that there’s a slight trend toward less regulation of product markets. A few nations have modestly reduced regulation of labor markets, but the most interesting observation is that this is an area where the United States has a major advantage. Only Germany is even close to America in allowing markets to operate with a high level of freedom.

Having examined the issues covered by the study, let’s now consider the results.

All discussed capital misallocation results are robust to the inclusion of market distortions, i.e. to regulatory and credit constraints. …The general decline in PMR over the period considered dampened capital misallocation dynamics… Stricter product market regulation is found to have led to higher labour misallocation growth. But we also find that more stringent labour market regulations positively correlate with labour misallocation growth, particularly in sectors characterized by more stringent product market regulations. Thus, these results support the idea that the positive effect of the tightness of PMR on labour misallocation growth is amplified if also EPL becomes more restrictive. Seen from an inverse perspective, the gains in the allocative efficiency of labour are larger if both kinds of regulation are jointly loosened.

Here’s the bottom line.

Our results therefore suggest that in order to foster a more efficient within-sector allocation of inputs across firms structural reforms, such as those lowering entry barriers for firms, removing size-contingent regulations that prevent firms from reaching their optimal size and enhancing bankruptcy regulations that facilitate the exit of unproductive firms, would be warranted. The loosening of PMR and EPL in recent years in some countries has proven to dampen misallocation dynamics, yet there is still room for further reductions, as shown for example when comparing the level of regulation with that in the U.S.

Unfortunately, I don’t expect that this study will have any sort of impact on the debate. The people who already understand the negative impact of regulation now have more evidence about the value of unfettered markets and creative destruction.

But the politicians and interest groups won’t care. They are interested in accumulating power and obtaining unearned benefits. To the extent that they would even bother to read the study, they would conclude that they should fight extra hard to preserve the status quo since they will realize that there are fewer favors to distribute when genuine capitalism is allowed to operate.

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I don’t have strong views on global warming. Or climate change, or whatever it’s being called today.

But I’ve generally been skeptical about government action for the simple reason that the people making the most noise are statists who would use any excuse to increase the size and power of government. To be blunt, I simply don’t trust them. In Washington, they’re called watermelons – green on the outside (identifying as environmentalists) but red on the inside (pushing a statist agenda).

But there are some sensible people who think some sort of government involvement is necessary and appropriate.

George Schultz and James Baker, two former Secretaries of State, argue for a new carbon tax in a Wall Street Journal column as part of an agenda that also makes changes to regulation and government spending.

…there is mounting evidence of problems with the atmosphere that are growing too compelling to ignore. …The responsible and conservative response should be to take out an insurance policy. Doing so need not rely on heavy-handed, growth-inhibiting government regulations. Instead, a climate solution should be based on a sound economic analysis that embodies the conservative principles of free markets and limited government. We suggest…creating a gradually increasing carbon tax…, returning the tax proceeds to the American people in the form of dividends. And…rolling back government regulations once such a system is in place.

A multi-author column in the New York Times, including Professors Greg Mankiw and Martin Feldstein from Harvard, also puts for the argument for this plan.

On-again-off-again regulation is a poor way to protect the environment. And by creating needless uncertainty for businesses that are planning long-term capital investments, it is also a poor way to promote robust economic growth. By contrast, an ideal climate policy would reduce carbon emissions, limit regulatory intrusion, promote economic growth, help working-class Americans and prove durable when the political winds change. …Our plan is…the federal government would impose a gradually increasing tax on carbon dioxide emissions. It might begin at $40 per ton and increase steadily. This tax would send a powerful signal to businesses and consumers to reduce their carbon footprints. …the proceeds would be returned to the American people on an equal basis via quarterly dividend checks. With a carbon tax of $40 per ton, a family of four would receive about $2,000 in the first year. As the tax rate rose over time to further reduce emissions, so would the dividend payments. …regulations made unnecessary by the carbon tax would be eliminated, including an outright repeal of the Clean Power Plan.

They perceive this plan as being very popular.

Environmentalists should like the long-overdue commitment to carbon pricing. Growth advocates should embrace the reduced regulation and increased policy certainty, which would encourage long-term investments, especially in clean technologies. Libertarians should applaud a plan premised on getting the incentives right and government out of the way.

I hate to be the skunk at the party, but I’m a libertarian and I’m not applauding. I explain some of my concerns about the general concept in this interview.

In the plus column, there would be a tax cut and a regulatory rollback. In the minus column, there would be a new tax. So two good ideas and one bad idea, right? Sounds like a good deal in theory, even if you can’t trust politicians in the real world.

However, the plan that’s being promoted by Schultz, Baker, Feldstein, Mankiw, etc, doesn’t have two good ideas and one bad idea. They have the good regulatory reduction and the bad carbon tax, but instead of using the revenue to finance a good tax cut such as eliminating the capital gains tax or getting rid of the corporate income tax, they want to create universal handouts.

They want us to believe that this money, starting at $2,000 for a family of four, would be akin to some sort of tax rebate.

That’s utter nonsense, if not outright prevarication. This is a new redistribution program. Sort of like the “basic income” scheme being promoted by some folks.

And it creates a very worrisome dynamic since people will have an incentive to support ever-higher carbon taxes in order to get ever-larger checks from the government. Heck, the plan being pushed explicitly envisions such an outcome.

I’ve made the economic argument against carbon taxes and the cronyism argument against carbon taxes. Now that we have a real-world proposal, we have the practical argument against carbon taxes.

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