“ You can see that regulations, as measured by ‘the ease of doing business’ index, has very little effect on the per capita income of the OECD member states plotted in the chart which appears in the blog article.”
Sorry, but your claim is almost surely wrong.
It is NOT that regulations have very little effect on per capita income, it is that there are many other effects which are even greater that affect productivity even more.
Just as correlation does not equal causation, your demonstration of lack of correlation of per capita income with regulation across the set of all countries does NOT demonstrate non-causation.
Again, I agree that the regression shows little explanatory power of regulation here. So I agree that this chart does NOT show evidence of regulation being explanatory.
But you don’t get to do the reverse. You do NOT get to claim that therefore it shows that regulations has no - or even little - effect. That is NOT how such regressions work.
The answer is unknown as to whether there is an effect, or in which direction.
The closest you MIGHT get to say is that it is unlikely to be an enormous effect. But even that you could not say with confidence based on the evidence shown here.
I already conceded in my first comment that it does show that any effect from regulation that might exist is smaller than at least one, and quite likely multiple, other explanatory values.
Recall, your specific words that I object to were “You can see that regulations, as measured by ‘the ease of doing business’ index, has very little effect on the per capita income of the OECD member states”. You do NOT get to conclude that “it has very little effect on per capita income”; you only get to conclude that it has much less effect than something else.
You continue to confuse correlation with causation, in addition to confusing lack of correlation in a particular regression with proof of no correlation.
The 30% reduction in price measure is definitely a conservative estimate, because it does not include the time and toil (what Thaler and Sustein call "sludge) that regulation bakes into the economy. Anyone who has ever completed and filed an itemized federal tax return themselves knows exactly what I'm talking about. Well, multiply that times 10 for just about anything dealing with commerce that is steeped in regulation.
Ending the IRS and instituting a straight consumption tax that Prof Cochrane has explained in the past would be great. Fairtax.org.....would be nice if the policy makers would read a "Grumpy" blog from years past about "four big insurance companies, four big oil companies" etc and implement policy to encourage rampant competition.
The cost to run the IRS is estimated at a little over $16B/annum, which is little more than crumbs in terms of our total federal budget. On the other hand, switching to a single consumption tax to fund our government woud have a profound impact on the bottom 50% of US income earners who have an average annual household income of less than $75,000 and who consume a much higher percentage of what they earn. This shift would be highly regressive and its unclear whether reliance on such a tax alone would actually fund our government. For upper income households, it would be a huge boon and would likely only widen the gap between the haves and have nots.
Well, we are talking about a hypothetical that will almost certainly not occur in any of our lifetimes (the chance of a constitutional amendment repealing the income tax being vanishingly small), but…
You could mitigate the harm to low-income folks of a switch to a consumption tax by making the rate negative at low enough consumption levels, and offering large credits per household member. A consumption tax need not be flat. And even if one implemented it as flat, using upfront credits/deductions can easily ensure that the poorest 50% still pay a fairly small share of all taxes (with progressivity in the tax, it becomes trivial).
At the correct level of course it could fund our government.
When you talk of “widening the gap” you have fallen victim to the leftist narrative that inequality is something that is bad and that it is that “gap” that should be addressed. Instead, of course, we want policies that rise all boats, making almost everyone richer and better off, and specifically those in the bottom half of the income distribution.
In the process of achieving *that* objective, if there are more Musks and Bezoses and Buffetts and Gateses, that is a VERY. GOOD. THING. (imo), and is certainly *not* a bad thing.
Not only is violating the 10th Commandment (“Thou shalt not covet”) simply an immoral thing, it leads to terrible public policy.
A consumption tax, assuming other Federal taxes were eliminated, would encourage people to sell investments and spend money. We don’t take any money from our 401’s, and hate taking money out of our taxable investments. The tax hit beyond a certain threshold is too high.
I'm not following your logic. If I pay say an additional 20% tax on a $75,000 new car, but pay no tax on the earnings from $75,000 invested in the market. I personally would see that as encouraging more investment, not less, and I certainly wouldn't see adding a substantial tax on spending as encouraging consumption.
I certainly am not an expert on this. What am I missing?
A tariff is a sales tax. It just happens to be a sales tax levied on goods produced in particular countries. 45 states collect a sales tax. What the federal government should do is eliminate the income tax and all forms of taxation on income, and rely instead on a simple sales tax. Sludge? Loopholes? You must be kidding. We have all that in spades with the income tax.
Your parenthetical "I like to avoid “deregulation,” as regulation is not about pouring more in or less. It’s about a very hard job of writing smart rather than counterproductive regulations." is well said.
Obviously, "if DOGE" can get off the ground is a pretty big "IF," as all signs point to Kakistocracy rather than Technocracy over the next 4 years.
The truth is, neither you nor anyone else can be sure what’s gonna happen with this.
OTOH, I’ll take even that “randomized” shot over the COVID lockdowns and lawfare we got with the “Technocracy” running things the last 4 years.
And if you could point me to the specific Technocrats responsible for Biden’s open border policy that abjectly flouted the law and enriched the drug cartels by billions and billions for their human trafficking, that would be much appreciated…
What a strange response. Biden? Borders? Buddy, we’re talking DOGE and government efficiency here. Rabid partisans like you are why it’s a mess in the first place. In any case, the partisan response would be to note that COVID lockdowns began with Trump…
You are the one who claimed “all signs point to Kakistocracy” and implicitly praising Technocracy - the mantra of statists, who are disproportionately Democrat elitists (though admittedly there exist some on the right, too).
Defense of The Technocracy is almost but not quite the diametric opposite of limited regulation and government interference. It is the claim that government experts can do better than the liberty of individuals making their own choices.
That you claim your initial statement is *not* partisan displays either hyper-partisanship or cluelessness (or more likely a bit of both).
But since you supposedly decry partisanship and then explicitly play the game: the massive problems with COVID lockdowns were not the initial response (for which reasonable people should be more forgiving, given the massive uncertainty), it was the continuing ones. And the worst of the lockdowns were done by blue states, which is where most of the COVID policies took place (the Biden vaccine mandates being a notable exception).
But you are certainly correct that Trump foolishly did not fire Fauci.
Let's hope $DOGE can get off the ground. I wonder, will Republicans from Florida vote to end sugar subsidies? Iowa Republicans vote to end ethanol and farm subsidies? Etc etc etc. I saw today in the Washington Post Trump is actively trying to figure out how to privatize the USPS....is the Trump second term going to be driven by Milton Friedman? We can only hope.
Even if we accept that deregulation results in a 30% in reduction in prices for Argentina, it is likely erroneous to extrapolate that elasticity to the United States. Argentina ranks 126 out of 190 on ease of doing business and a reasonable assumption is that the marginal effect of easing regulation is decreasing in ease of doing business. Hence, 30% is likely an upper bound.
The other salient issue is the likely trade-off between first and second moments of income due to deregulation. Given where America is starting from, the gains of the former likely could be offset by the latter in the preferences of the electorate. To illustrate this, consider regulation constraining credit growth. Higher credit growth would likely mean higher average income but also greater income volatility. Post-GFC the American electorate implicitly decided that they'd accept lower income in exchange for lower volatility.
As household balance sheets have been repaired and consumers find themselves greater able to bear risk, the pendulum may very well be swinging towards deregulation. But there's no guaranteeing that these preferences will be time-invariant. Boom-bust, regulation-deregulation cycles are likely here to stay.
If it was just a 20% reduction and everyone could have an extra 10% to spend and an extra 10% to save, over a lifetime of work, that's potentially going to double your retirement savings.
I read a study that estimated the impact of excessive regulation in the US on GDP growth. If excessive regulations had been held constant for 50 years (How they estimated that, I do not know.) they calculated that our GDP would be 3X what it is now. If they are anywhere near correct, that would translate in massive personal benefits.
The principles behind (any) product/engineering regulations/codes are usually very simple and should definitely be there. E.g. for all electrical products there are basic requirements (shall not cause electrical shock, overcurrent, short circuit, etc.), but then “they” start prescribing more and more detailed codes on exactly what solutions you need to make to fulfill the basic requirements.(same for most domains).
Striking a balance that ensures a minimum level of safety versus allowing business to build innovative solutions is the key - and after years of adding more and more clauses to the rules it may be time for a spring cleaning.
You may not want a cheaper house, but many others would. Regulation effectively takes away that choice. For many years, building and/or housing codes required a 2nd means of exit, because safety. A 2nd means of egress is an additional cost, loss of living space through every level. Now there's talk about removing this requirement for some buildings. Would it be less safe? There have been advances in fire detection and suppression but the 2nd exit regulation stayed in the books. Electrical code updates with new requirements that ratchet up costs. Technology not available before cheaply is now required in some localities, but even these newly "cheaply" available things are additional costs. Your old house may not have arc-fault circuit breakers, but should you upgrade to them?
I am retired securities lawyer. You wouldn't believe the stupidity embedded in SEC regulations. "Oh but the cost is minimal . . . go away!"
maybe
Have a look at section 16(b) of the Securities Exchange Act of 1934 and Rule 16b-3. What are they about?
I'll spare you the long-winded explanation. Basically, section 16(b) says that if you are a big shot (director, executive officer, or 10%+ stockholder of Ajax Corp) you cannot be both a buyer and a seller of Ajax stock in a period of six months. If you are, you forfeit back to Ajax the difference.
What is Rule 16b-3? It diagrams an elaborate way to avoid 16(b) exposure. It is especially useful for corporate compensation, for example stock option plans. You would not believe how much lawyer time $$$$$$ is dedicated to Rule 16b-3 compliance. It is farce down to the core. Every last nickel. Section 16(b) is possibly one of the dumbest ideas ever hatched. Lots of lawyers have made beaucoup lucre off Section 16(b) and Rule 16b-3. It not only adds nothing to the societal good, it positively detracts from it. Yes, that's merely my opinion. But I'm right.
Mister not an economist, right on. I managed a hedge fund. An SEC functionary appeared in my office and wanted to know if we traded with Ivan Boesky. During the interview it became apparent this young attorney knew very little about trading hedges. He thought the offsetting hedge to the spot price was fixed and never changed when the spot did.
my ignoble career began at the SEC in Washington, in the Corporation Finance Division, reviewing corporate filings (IPOs, 10-Ks, proxy statements, etc., etc.)
I was 27
my intentions were honorable
pre-digital age, so there is no record of my actions (I hope)
I am convinced, and have written before, that the primary objective of many of these regulations is to enrich the attorneys who must review, fight, and enforce them.
Laws should be as simple as possible, but no simpler.
Please do *not* take this as an argument for more laws. I’d prefer fewer.
But not all laws can be brain-dead simple, as they then likely become too easy to circumvent. And in the real-world of rule of law not rule of man, you can’t simply Merchant-of-Venice your way to the preferred moral result.
For example, the pre-Obamacare (with its idiotic ability to allow people to buy insurance after the fire has started… 🙄) HIPAA laws about insurance companies’ group plans not being able to deny reasonable-priced coverage for preexisting conditions so long as the insured had continuous coverage is something that probably can’t be “simple”.
Funny, I am a current securities practitioner and could not agree more. Very few 3b-7 insiders are ever allowed to trade due to the likelihood of being perpetually possessed of MNPI, and in any event, can avail themselves of 10b5-1 plans/affirmative defenses, which should also be exempt from short-swing profit rules.
IMF Blog, December 5, 2023: Jens Merhoff wrote on the NGFS climate scenarios (for banks) and the IMF chart showing that NZ2050 policy bears an expected GDP gain far exceeding mitigation cost. Additionally,. there is a (Weitzman) tail skimming benefit that probably isn't fully reflected. Carbon-price dot com, for many years, explains the market mechanism of carbon prices - far from a "dumb & costly" command and control regulation.
Non-climate economists, intentionally or not, rile up right wing political forces with regulation=bad instead of educating those forces on where $co2=good. Explaining the nuance of tail-skimming is far less challenging to people whose insurance premiums just spiked or who've had wildfire smoke burn their eyes on the back porch. When supposed economists associate with tearing down NOAA - do mainstream economists feel any pull to re-contextualize folks like Nordhaus, Jacoby, Metcalf, Weitzman, Weyant, or Zeckhauser - or even a non-economist like Hank Paulson - on what the latest IAM runs are telling us? Or just review the IMF graph which got little attention in the US this year. Maybe it's never a good time, but before NOAA shuttering would be a nice public service.
I know we can’t go all anarcho-capitalist and say all regulation is bad, but can someone provide an example from the last 100 or so years where we said “thank God those regulators were there to save the day”?
I'll give that a "Scottish verdict" of not proven or refuted. I know the market would have solved all of these without the added benefit of not introducing moral hazard.
Well, you could Scottish verdict anything, since it’s hard to prove a counterfactual (or do you have evidence of same in places without regulation?).
But your claim that you “know” the market would have solved all these demonstrates a lack of epistemic humility.
And since at least the first and the second are somewhat classic “tragedy of the commons” cases, it’s hard to envisage a market solution, especially for the 2nd case.
(Be clear that for the 2nd case the problem is not any one building burning, but that one burning causes a much larger multi-building “forest fire”.
And very expensive insurance would not have stopped the great Chicago fire.
I agree you can argue against original FDIC insurance (and to be clear, I’m opposed to what it’s become in practice now), but eliminating most bank runs was probably a worthwhile thing for society.
Just because the left way oversuggests that everything is a “tragedy of the commons”, doesn’t mean there are *no* such things.
But clearly despite suggesting otherwise with your initial comment, you are indeed going complete anarcho-capitalist with your arguments.
And to leave no doubt, I’m quite sure I’m more anti-regulation than 98%+ of the country.
“without the added benefit of not introducing moral hazard.”
I understand the argument re: FDIC deposit insurance, but could you educate me about the moral hazard with building fire codes and especially with childhood vaccine mandates?
Any time you rely on the government to coerce people into to what's "best for them", instead of relying on them to act in their own best interests, you create a moral hazard.
"Any time you rely on the government to coerce people into to what's 'best for them', instead of relying on them to act in their own best interests, you create a moral hazard."
Yeah, this statement is false. That’s exactly what the tragedy of the commons demonstrates.
If everyone’s cows graze the common, available to all field (i.e. publicly owned) as much as possible, then ultimately everyone is a loser.
Anarcho-capitalist principles *usually* yield a better result. FAR more than leftist state intervention approaches. But *not* always.
The whole point of these two examples is *not* that they are likely in the individual’s own interest, but specifically because these mandates serve the interest of most *others* in the community.
But if I play along with your game, can you be more specific about the moral hazard involved in childhood vaccine mandates? And the moral hazard involved in building codes that require fire resistance?
Hard to imagine. One thing I have written about is the FAA speed limit. Ostensibly to prevent sonic booms, the FAA killed supersonic flight by limiting the speed of aircraft…why?
Eh, your premise is flawed: if regulators are doing their job, then you'll never notice anything was wrong to begin with, and therefore never notice that something bad was prevented. We only notice regulators when things go bad, not when they go right.
This is not a defense of regulators since things go bad often enough.
Your scenario begs the question that we must have regulations for regulators to oversee. That's the false premise and the whole point of John's article.
We cannot all go anarcho-capitalist but the damage of regulation has reached such levels that it is safe to smash it blindly and benefit.
Of course, some "good" regulation (don't ask me which one though) will be destroyed in the process but this will be dwarfed by all the benefits of smashing counter-productive, useless and nefarious regulation.
I don’t believe I’d ever previously seen the phrase “deregulated god” before, thanks for the chuckle 🤭.
Seriously, I think the true costs of regulation is the most important point that people on all sides ignore - or really, underplay to the extreme. Here’s hoping Elon and Vivek can make a big dent with DOGE.
I'm a software guy, and I've seen the negative impacts of regulation in spades.
There is a key idea behind all this: regulations typically state HOW a goal is to be accomplished instead of, plainly and simply, defining WHAT the goal is. Criminal law is short and doesn't need continual expansion. The goal for example is don't cause anyone's death. Typical regulations would spell out in ever-expanding detail HOW to avoid killing anyone. In software, this means spelling out how you have to write the software instead of just saying "it should do what it's supposed to do." For example, this is why medical devices are so expensive. see:
As a grad student writing a dissertation, I always loved IMF and World Bank measures, because they were so slick and simple to use, yet backed by a moral authority that allowed you to accept them at face value. Today, when I try to drill down into such measures and charts like this, all I really find is beautifully seductive smoke and mirrors. No wonder journalists love them so much. The point being, that it doesn’t matter where the US falls on this chart. All you have to do is look around to see how we are strangling our economic selves.
Argentina rent controls were passed in 2020, during Covid. The country lost about 2800 lives per 1 million people. During an epidemic you don't want people being evicted. Landlords in Argentina wanted to be able to raise rents every month and charge people in US dollars. Crises like Covid are a great opportunity to gouge prices as people are reluctant to move, search for a new place, and are more willing to pay higher rent rates. If Argentina rent control regulations were successful in saving just one life, they were worth it.
I’ll ignore the rest of what you write, and merely comment that “…successful in saving just one life, they were worth it” rationales are the absolute worst ones of all. Down there with “your position is wrong because your politician is worse than Hitler.”
John wrote, "It’s hard to see all the businesses products and services that might be there if regulation had not stifled them." I suspect that's true. Looking at the least squares regression line, It seems there is relative comparability. US: GDP/EODB 66000/82 = 804. China GDP/EODB 6600/62 =106.45. India 4200/50 = 84. The US is less regulated by a factor of nearly ten relative to India. Can this be something of a guide?
“ You can see that regulations, as measured by ‘the ease of doing business’ index, has very little effect on the per capita income of the OECD member states plotted in the chart which appears in the blog article.”
Sorry, but your claim is almost surely wrong.
It is NOT that regulations have very little effect on per capita income, it is that there are many other effects which are even greater that affect productivity even more.
Just as correlation does not equal causation, your demonstration of lack of correlation of per capita income with regulation across the set of all countries does NOT demonstrate non-causation.
Again, I agree that the regression shows little explanatory power of regulation here. So I agree that this chart does NOT show evidence of regulation being explanatory.
But you don’t get to do the reverse. You do NOT get to claim that therefore it shows that regulations has no - or even little - effect. That is NOT how such regressions work.
The answer is unknown as to whether there is an effect, or in which direction.
The closest you MIGHT get to say is that it is unlikely to be an enormous effect. But even that you could not say with confidence based on the evidence shown here.
I already conceded in my first comment that it does show that any effect from regulation that might exist is smaller than at least one, and quite likely multiple, other explanatory values.
Recall, your specific words that I object to were “You can see that regulations, as measured by ‘the ease of doing business’ index, has very little effect on the per capita income of the OECD member states”. You do NOT get to conclude that “it has very little effect on per capita income”; you only get to conclude that it has much less effect than something else.
You continue to confuse correlation with causation, in addition to confusing lack of correlation in a particular regression with proof of no correlation.
The 30% reduction in price measure is definitely a conservative estimate, because it does not include the time and toil (what Thaler and Sustein call "sludge) that regulation bakes into the economy. Anyone who has ever completed and filed an itemized federal tax return themselves knows exactly what I'm talking about. Well, multiply that times 10 for just about anything dealing with commerce that is steeped in regulation.
Makes you wonder what the sludge effect of rampant tariffs will be, given how many loopholes will be baked in for corporate friendlies
Ending the IRS and instituting a straight consumption tax that Prof Cochrane has explained in the past would be great. Fairtax.org.....would be nice if the policy makers would read a "Grumpy" blog from years past about "four big insurance companies, four big oil companies" etc and implement policy to encourage rampant competition.
The cost to run the IRS is estimated at a little over $16B/annum, which is little more than crumbs in terms of our total federal budget. On the other hand, switching to a single consumption tax to fund our government woud have a profound impact on the bottom 50% of US income earners who have an average annual household income of less than $75,000 and who consume a much higher percentage of what they earn. This shift would be highly regressive and its unclear whether reliance on such a tax alone would actually fund our government. For upper income households, it would be a huge boon and would likely only widen the gap between the haves and have nots.
Well, we are talking about a hypothetical that will almost certainly not occur in any of our lifetimes (the chance of a constitutional amendment repealing the income tax being vanishingly small), but…
You could mitigate the harm to low-income folks of a switch to a consumption tax by making the rate negative at low enough consumption levels, and offering large credits per household member. A consumption tax need not be flat. And even if one implemented it as flat, using upfront credits/deductions can easily ensure that the poorest 50% still pay a fairly small share of all taxes (with progressivity in the tax, it becomes trivial).
At the correct level of course it could fund our government.
When you talk of “widening the gap” you have fallen victim to the leftist narrative that inequality is something that is bad and that it is that “gap” that should be addressed. Instead, of course, we want policies that rise all boats, making almost everyone richer and better off, and specifically those in the bottom half of the income distribution.
In the process of achieving *that* objective, if there are more Musks and Bezoses and Buffetts and Gateses, that is a VERY. GOOD. THING. (imo), and is certainly *not* a bad thing.
Not only is violating the 10th Commandment (“Thou shalt not covet”) simply an immoral thing, it leads to terrible public policy.
A consumption tax, assuming other Federal taxes were eliminated, would encourage people to sell investments and spend money. We don’t take any money from our 401’s, and hate taking money out of our taxable investments. The tax hit beyond a certain threshold is too high.
I'm not following your logic. If I pay say an additional 20% tax on a $75,000 new car, but pay no tax on the earnings from $75,000 invested in the market. I personally would see that as encouraging more investment, not less, and I certainly wouldn't see adding a substantial tax on spending as encouraging consumption.
I certainly am not an expert on this. What am I missing?
A tariff is a sales tax. It just happens to be a sales tax levied on goods produced in particular countries. 45 states collect a sales tax. What the federal government should do is eliminate the income tax and all forms of taxation on income, and rely instead on a simple sales tax. Sludge? Loopholes? You must be kidding. We have all that in spades with the income tax.
Or look at entire industries that do not exist in USA at all because of regulation. Jones Act and Ship Building comes to mind.
Yes, entire industries killed off by rent seekers.
Your parenthetical "I like to avoid “deregulation,” as regulation is not about pouring more in or less. It’s about a very hard job of writing smart rather than counterproductive regulations." is well said.
Obviously, "if DOGE" can get off the ground is a pretty big "IF," as all signs point to Kakistocracy rather than Technocracy over the next 4 years.
All signs? No, that’s just wrong.
*Some* signs, sure.
The truth is, neither you nor anyone else can be sure what’s gonna happen with this.
OTOH, I’ll take even that “randomized” shot over the COVID lockdowns and lawfare we got with the “Technocracy” running things the last 4 years.
And if you could point me to the specific Technocrats responsible for Biden’s open border policy that abjectly flouted the law and enriched the drug cartels by billions and billions for their human trafficking, that would be much appreciated…
What a strange response. Biden? Borders? Buddy, we’re talking DOGE and government efficiency here. Rabid partisans like you are why it’s a mess in the first place. In any case, the partisan response would be to note that COVID lockdowns began with Trump…
Name call all you like.
You are the one who claimed “all signs point to Kakistocracy” and implicitly praising Technocracy - the mantra of statists, who are disproportionately Democrat elitists (though admittedly there exist some on the right, too).
Defense of The Technocracy is almost but not quite the diametric opposite of limited regulation and government interference. It is the claim that government experts can do better than the liberty of individuals making their own choices.
That you claim your initial statement is *not* partisan displays either hyper-partisanship or cluelessness (or more likely a bit of both).
But since you supposedly decry partisanship and then explicitly play the game: the massive problems with COVID lockdowns were not the initial response (for which reasonable people should be more forgiving, given the massive uncertainty), it was the continuing ones. And the worst of the lockdowns were done by blue states, which is where most of the COVID policies took place (the Biden vaccine mandates being a notable exception).
But you are certainly correct that Trump foolishly did not fire Fauci.
Jesus, dude.
Let's hope $DOGE can get off the ground. I wonder, will Republicans from Florida vote to end sugar subsidies? Iowa Republicans vote to end ethanol and farm subsidies? Etc etc etc. I saw today in the Washington Post Trump is actively trying to figure out how to privatize the USPS....is the Trump second term going to be driven by Milton Friedman? We can only hope.
So far they have only talked about adding regulations and tariffs,.so honestly I am not holding out hope.
?? Who is the “they” to whom you are referring here? I doubt that it’s Elon and Vivek.
The incoming administration.
They of course have talked about tariffs and the threat thereof, no question.
But they have also talked up DOGE and Musk, explicitly about deregulation.
What exactly are all the other regulations they’ve talked about adding?
Banning food additives, banning minerals and parts from other countries...etc
Do you have references (links)?
A quick google search shows nothing when I do it
Even if we accept that deregulation results in a 30% in reduction in prices for Argentina, it is likely erroneous to extrapolate that elasticity to the United States. Argentina ranks 126 out of 190 on ease of doing business and a reasonable assumption is that the marginal effect of easing regulation is decreasing in ease of doing business. Hence, 30% is likely an upper bound.
The other salient issue is the likely trade-off between first and second moments of income due to deregulation. Given where America is starting from, the gains of the former likely could be offset by the latter in the preferences of the electorate. To illustrate this, consider regulation constraining credit growth. Higher credit growth would likely mean higher average income but also greater income volatility. Post-GFC the American electorate implicitly decided that they'd accept lower income in exchange for lower volatility.
As household balance sheets have been repaired and consumers find themselves greater able to bear risk, the pendulum may very well be swinging towards deregulation. But there's no guaranteeing that these preferences will be time-invariant. Boom-bust, regulation-deregulation cycles are likely here to stay.
so? what if it's "only" a 20% reduction? 10%? I don't think anyone serious would say it is any less than that.
If it was just a 20% reduction and everyone could have an extra 10% to spend and an extra 10% to save, over a lifetime of work, that's potentially going to double your retirement savings.
I read a study that estimated the impact of excessive regulation in the US on GDP growth. If excessive regulations had been held constant for 50 years (How they estimated that, I do not know.) they calculated that our GDP would be 3X what it is now. If they are anywhere near correct, that would translate in massive personal benefits.
I do not want a new house built without stringent electrical regulations, even though cheaper.
Exactly.
The principles behind (any) product/engineering regulations/codes are usually very simple and should definitely be there. E.g. for all electrical products there are basic requirements (shall not cause electrical shock, overcurrent, short circuit, etc.), but then “they” start prescribing more and more detailed codes on exactly what solutions you need to make to fulfill the basic requirements.(same for most domains).
Striking a balance that ensures a minimum level of safety versus allowing business to build innovative solutions is the key - and after years of adding more and more clauses to the rules it may be time for a spring cleaning.
“I do not want a new house built without stringent electrical regulations, even though cheaper.”
No, you don’t want a new house built shoddily.
It is a complete fallacy to assume that it is only - or even primarily - “stringent regulations” that cause “proper” building.
Builders have reputations that matter to them. Incentives matter.
Yup. So does liability if the builder fails to properly construct a building that collapses.
You may not want a cheaper house, but many others would. Regulation effectively takes away that choice. For many years, building and/or housing codes required a 2nd means of exit, because safety. A 2nd means of egress is an additional cost, loss of living space through every level. Now there's talk about removing this requirement for some buildings. Would it be less safe? There have been advances in fire detection and suppression but the 2nd exit regulation stayed in the books. Electrical code updates with new requirements that ratchet up costs. Technology not available before cheaply is now required in some localities, but even these newly "cheaply" available things are additional costs. Your old house may not have arc-fault circuit breakers, but should you upgrade to them?
I wonder how many people really want a shower that "saves" 90% of the water used by a "normal" shower?
I'm not an economist. Am I allowed to comment?
I am retired securities lawyer. You wouldn't believe the stupidity embedded in SEC regulations. "Oh but the cost is minimal . . . go away!"
maybe
Have a look at section 16(b) of the Securities Exchange Act of 1934 and Rule 16b-3. What are they about?
I'll spare you the long-winded explanation. Basically, section 16(b) says that if you are a big shot (director, executive officer, or 10%+ stockholder of Ajax Corp) you cannot be both a buyer and a seller of Ajax stock in a period of six months. If you are, you forfeit back to Ajax the difference.
What is Rule 16b-3? It diagrams an elaborate way to avoid 16(b) exposure. It is especially useful for corporate compensation, for example stock option plans. You would not believe how much lawyer time $$$$$$ is dedicated to Rule 16b-3 compliance. It is farce down to the core. Every last nickel. Section 16(b) is possibly one of the dumbest ideas ever hatched. Lots of lawyers have made beaucoup lucre off Section 16(b) and Rule 16b-3. It not only adds nothing to the societal good, it positively detracts from it. Yes, that's merely my opinion. But I'm right.
Mister not an economist, right on. I managed a hedge fund. An SEC functionary appeared in my office and wanted to know if we traded with Ivan Boesky. During the interview it became apparent this young attorney knew very little about trading hedges. He thought the offsetting hedge to the spot price was fixed and never changed when the spot did.
my ignoble career began at the SEC in Washington, in the Corporation Finance Division, reviewing corporate filings (IPOs, 10-Ks, proxy statements, etc., etc.)
I was 27
my intentions were honorable
pre-digital age, so there is no record of my actions (I hope)
I have been to the mountain and I can't go back
I am convinced, and have written before, that the primary objective of many of these regulations is to enrich the attorneys who must review, fight, and enforce them.
Laws should be simple.
“Laws should be simple.”
I think Einstein was right about this.
Laws should be as simple as possible, but no simpler.
Please do *not* take this as an argument for more laws. I’d prefer fewer.
But not all laws can be brain-dead simple, as they then likely become too easy to circumvent. And in the real-world of rule of law not rule of man, you can’t simply Merchant-of-Venice your way to the preferred moral result.
For example, the pre-Obamacare (with its idiotic ability to allow people to buy insurance after the fire has started… 🙄) HIPAA laws about insurance companies’ group plans not being able to deny reasonable-priced coverage for preexisting conditions so long as the insured had continuous coverage is something that probably can’t be “simple”.
yes, as Cecil Pigou suggested...
Funny, I am a current securities practitioner and could not agree more. Very few 3b-7 insiders are ever allowed to trade due to the likelihood of being perpetually possessed of MNPI, and in any event, can avail themselves of 10b5-1 plans/affirmative defenses, which should also be exempt from short-swing profit rules.
What are the best books on the SEC? Hopefully comprehensible to the layman...
that's a good question
I am sorry I don't have an answer, however
it is 90 years old this year
the world around it has changed so much
40 years since I was there
lots of change just in those 40 years
the central goal remains, however: full disclosure
but lots of carbuncles have attached themselves to it, thanks to the doctrinaire people all around us, particularly in Washington D.C.
social justice, sustainability, DEI, climate change, blah, blah, blah have gotten their nose under the tent
I'll stop there and go back to my cave
Sounds like you could write the book...
IMF Blog, December 5, 2023: Jens Merhoff wrote on the NGFS climate scenarios (for banks) and the IMF chart showing that NZ2050 policy bears an expected GDP gain far exceeding mitigation cost. Additionally,. there is a (Weitzman) tail skimming benefit that probably isn't fully reflected. Carbon-price dot com, for many years, explains the market mechanism of carbon prices - far from a "dumb & costly" command and control regulation.
Non-climate economists, intentionally or not, rile up right wing political forces with regulation=bad instead of educating those forces on where $co2=good. Explaining the nuance of tail-skimming is far less challenging to people whose insurance premiums just spiked or who've had wildfire smoke burn their eyes on the back porch. When supposed economists associate with tearing down NOAA - do mainstream economists feel any pull to re-contextualize folks like Nordhaus, Jacoby, Metcalf, Weitzman, Weyant, or Zeckhauser - or even a non-economist like Hank Paulson - on what the latest IAM runs are telling us? Or just review the IMF graph which got little attention in the US this year. Maybe it's never a good time, but before NOAA shuttering would be a nice public service.
"...un my view if the DOGE..."
should be
"...in my view if the DOGE..."
I know we can’t go all anarcho-capitalist and say all regulation is bad, but can someone provide an example from the last 100 or so years where we said “thank God those regulators were there to save the day”?
I’d nominate (most, perhaps all) childhood vaccine mandates as a possibility.
There are probably at least a couple fire-resistance codes for buildings in big cities that might qualify.
And while it’s now been taken WAY too far, FDIC insurance for (relatively) small bank deposits was probably a net good idea.
I'll give that a "Scottish verdict" of not proven or refuted. I know the market would have solved all of these without the added benefit of not introducing moral hazard.
Well, you could Scottish verdict anything, since it’s hard to prove a counterfactual (or do you have evidence of same in places without regulation?).
But your claim that you “know” the market would have solved all these demonstrates a lack of epistemic humility.
And since at least the first and the second are somewhat classic “tragedy of the commons” cases, it’s hard to envisage a market solution, especially for the 2nd case.
(Be clear that for the 2nd case the problem is not any one building burning, but that one burning causes a much larger multi-building “forest fire”.
Ever heard of insurance? Just sayin'...
Dude,
Insurance doesn’t stop an outbreak of polio.
And very expensive insurance would not have stopped the great Chicago fire.
I agree you can argue against original FDIC insurance (and to be clear, I’m opposed to what it’s become in practice now), but eliminating most bank runs was probably a worthwhile thing for society.
Just because the left way oversuggests that everything is a “tragedy of the commons”, doesn’t mean there are *no* such things.
But clearly despite suggesting otherwise with your initial comment, you are indeed going complete anarcho-capitalist with your arguments.
And to leave no doubt, I’m quite sure I’m more anti-regulation than 98%+ of the country.
“without the added benefit of not introducing moral hazard.”
I understand the argument re: FDIC deposit insurance, but could you educate me about the moral hazard with building fire codes and especially with childhood vaccine mandates?
Any time you rely on the government to coerce people into to what's "best for them", instead of relying on them to act in their own best interests, you create a moral hazard.
"Any time you rely on the government to coerce people into to what's 'best for them', instead of relying on them to act in their own best interests, you create a moral hazard."
Yeah, this statement is false. That’s exactly what the tragedy of the commons demonstrates.
If everyone’s cows graze the common, available to all field (i.e. publicly owned) as much as possible, then ultimately everyone is a loser.
Anarcho-capitalist principles *usually* yield a better result. FAR more than leftist state intervention approaches. But *not* always.
The whole point of these two examples is *not* that they are likely in the individual’s own interest, but specifically because these mandates serve the interest of most *others* in the community.
But if I play along with your game, can you be more specific about the moral hazard involved in childhood vaccine mandates? And the moral hazard involved in building codes that require fire resistance?
Good nominations
Hard to imagine. One thing I have written about is the FAA speed limit. Ostensibly to prevent sonic booms, the FAA killed supersonic flight by limiting the speed of aircraft…why?
If you want to limit noise…limit noise…not speed!
Eh, your premise is flawed: if regulators are doing their job, then you'll never notice anything was wrong to begin with, and therefore never notice that something bad was prevented. We only notice regulators when things go bad, not when they go right.
This is not a defense of regulators since things go bad often enough.
Your scenario begs the question that we must have regulations for regulators to oversee. That's the false premise and the whole point of John's article.
We cannot all go anarcho-capitalist but the damage of regulation has reached such levels that it is safe to smash it blindly and benefit.
Of course, some "good" regulation (don't ask me which one though) will be destroyed in the process but this will be dwarfed by all the benefits of smashing counter-productive, useless and nefarious regulation.
I don’t believe I’d ever previously seen the phrase “deregulated god” before, thanks for the chuckle 🤭.
Seriously, I think the true costs of regulation is the most important point that people on all sides ignore - or really, underplay to the extreme. Here’s hoping Elon and Vivek can make a big dent with DOGE.
Well-put and well-said.
I'm a software guy, and I've seen the negative impacts of regulation in spades.
There is a key idea behind all this: regulations typically state HOW a goal is to be accomplished instead of, plainly and simply, defining WHAT the goal is. Criminal law is short and doesn't need continual expansion. The goal for example is don't cause anyone's death. Typical regulations would spell out in ever-expanding detail HOW to avoid killing anyone. In software, this means spelling out how you have to write the software instead of just saying "it should do what it's supposed to do." For example, this is why medical devices are so expensive. see:
https://www.blackliszt.com/2023/01/how-to-reduce-the-cost-of-medical-imaging-and-pacs.html
The same is true with software security and much else. See this for much more:
https://www.blackliszt.com/regulations/
As a grad student writing a dissertation, I always loved IMF and World Bank measures, because they were so slick and simple to use, yet backed by a moral authority that allowed you to accept them at face value. Today, when I try to drill down into such measures and charts like this, all I really find is beautifully seductive smoke and mirrors. No wonder journalists love them so much. The point being, that it doesn’t matter where the US falls on this chart. All you have to do is look around to see how we are strangling our economic selves.
Argentina rent controls were passed in 2020, during Covid. The country lost about 2800 lives per 1 million people. During an epidemic you don't want people being evicted. Landlords in Argentina wanted to be able to raise rents every month and charge people in US dollars. Crises like Covid are a great opportunity to gouge prices as people are reluctant to move, search for a new place, and are more willing to pay higher rent rates. If Argentina rent control regulations were successful in saving just one life, they were worth it.
I’ll ignore the rest of what you write, and merely comment that “…successful in saving just one life, they were worth it” rationales are the absolute worst ones of all. Down there with “your position is wrong because your politician is worse than Hitler.”
John wrote, "It’s hard to see all the businesses products and services that might be there if regulation had not stifled them." I suspect that's true. Looking at the least squares regression line, It seems there is relative comparability. US: GDP/EODB 66000/82 = 804. China GDP/EODB 6600/62 =106.45. India 4200/50 = 84. The US is less regulated by a factor of nearly ten relative to India. Can this be something of a guide?