Source: Business Insider
I missed the Democratic debate Tuesday evening, occupied as I was with listening to classic rock from the 1970s. What would have interested me in that debate was the discussion of the proper role of regulation in modern capitalism.
The U.S. doesn’t seem to engage in the topic like one might expect in a mature, developed economy. There is little intelligent discussion about the costs of too much regulation on the one hand, and the excesses of capitalism on the other. That is a shame, because both sides of those issues create real economic frictions with substantial societal costs.
Consider the slowdown in productivity in the U.S. in the past few years (see total labor productivity, via Federal Reserve Bank of St. Louis). Wharton School professor Jeremy Siegel has wondered if regulation isn’t a major reason behind the decline. I suspect that’s one of many factors, although much of it might be accounted for by measurement flaws. (You can hear Siegel discuss this in our Masters in Business radio podcast this coming weekend).
I will defer the issue of saving capitalism from itself to some future column. But a related issue I would like to address is how poor a job the U.S. does in regulating industries to which it grants monopoly or oligopoly status. Consider the following chart
Continues at Monopolies Don’t Give Us Nice Things
Regulation is necessary to prevent a “Tragedy of the Commons” and to provide adequate information for consumers to make informed choices.
For example, pollution regulation is essential because otherwise entities will simply dump waste (like they used to) into common resources that transfer the pollution cost to another party that did not participate in the original profit-making action. It is similar to regulating vandalism and larceny, both of which have been on the books for millennia. However, this type of regulation should be quite performance-based with latitude for how to accomplish the goal.
Health and safety regulations are also essential because without adequate information and guidelines, it is virtually impossible to make an informed choice. However, the government requirements should be relatively low and focused more on information than actual requirements, so that consumers can make a reasonably informed choice. The private sector can build on that (e.g. Consumer Reports, IIHS crash tests). But there are still fundamental standards that need to be met (fire codes, building codes, baby crib details, restaurant food safety etc.) simply so that a lot of time and energy is not spent re-learning old mistakes.
I work in a field where we deal with a lot of land use and environmental regulation. I recently joked with a friend that we don’t have to worry about World War III because the EIS alone would take at least 5 years before it could get started, and much longer than that if it got litigated to the Supreme Court.
The big challenge in regulation is understanding when a regulation deviates from fundamental protection of the public and morphs into protection of a specific interest group. This is where government regulation has expanded greatly in the US over the past few decades. For example, in the early 1900s, NY only licensed a handful of professions, such as doctors, engineers, dentists etc. where the health and safety of the public was genuinely at risk. Now NY licenses almost 100 professions and 32 occupations, including barber (presumably they would have caught Sweeney Todd in the license application phase).
Having worked in both Canada and the US, there are a number of similar regulations in the two countries. The US regulation typically requires hundreds or thousands of pages to document very prescriptive requirements. Many of the similar regulations in Canada are less than 50 pages long and simply outline the performance goals and the general requirements to document that those goals have been met. Interestingly, the very long US regulations often have numerous exemptions, so that major special interests don’t have to follow the stringent, prescriptive requirements. In Canada, the brevity of the regulation usually reduces the number of exemptions.
Part of that as far as I can recall is the requirement that regulations go through a “cost/benefit analysis” in the US which sounds good but leads to intended or unintended consequences:
1. Industries can tie up regulations via lawsuits
2. Regulators try to get voluminous regulations passed – knowing that some will be knocked out
The latest thing I have heard about is regulators making proposal as to new regulation to nudge companies into compliance.
A long and expensive exercise brought to you by K Street and Citizens United.
monopolies dont lead to much more than higher prices and bad service
A serious conversation, in today’s transactional politics environment?! Well-done, BR.
Oh, and “SAVING CAPITALISM, for the many, not the few”, by Robert B. Reich. YouTube Channel of his, LOTS of videos that he’s posted. Yes, I know, proselytising he does—and me, now—but there’s been waaay too much, “Gummamint is the problem, dammit! Leave us along to make as much as possible, don’t need no stinkin’ government interfering!”, such promises that haven’t delivered. Both Capitalism & government need improvement!!
My 2 cents. S.
Easy solution. Any price increase by a any monopoly or oligopoly must be approved by a vote from the costumers. If the company is owned at least 51% by a government entity that was elected by at least 51% of the costumers, then approval can come through that government entity. But, but – then it would be a real bad business decision to become an oligopoly/monopoly. Yes and that is the point. Then a little snot-faced bloodsucking biotech wiz would no longer find it worth his money to purchase himself into a de facto monopoly on a drug and suck the lifeblood out of people who desperately need that drug.
more of the reversal of wokman’s comp
https://www.propublica.org/article/inside-corporate-americas-plan-to-ditch-workers-comp
do not get injured while at work
using social security number as ID and for verification leads to identity theft
http://fivethirtyeight.com/datalab/the-way-we-use-social-security-numbers-is-absurd/
This entry and two previous – “How Scientists Fool Themselves” and “Don’t Be Blinded by Big, Scary Numbers” – have much in common in the kinds of thinking they point out. The clear, simple and vivid hypothesis, “Free markets are good, government regulation is bad,” is a kind of numerator in that it is lacking its denominator; the larger context and is all that can be seen. As Kahneman would say, “What You See Is All There Is (WYSIATI). Monopolies are bad, but government regulation would be so much worse (while picking out the data to “prove” it). Meanwhile, deny any alternative hypotheses/possibilities and demonize all adversaries. Get people to fear any change in the status quo and, voila, a just so-story.
thought the Tea Party was against wasteful spending?
http://www.thedailybeast.com/articles/2015/10/15/the-tea-partier-who-loves-wasting-billions-on-cold-war-weapons.html
only some times
I think their definition of “wasteful spending” is any and all spending on “them there kind of people”.
you werent suppose to notice that.
and its usually just ‘my group’ that counts. all the others dont
or keep your hands off my
Medicare
Social Security
even while those they elect work to eliminate just those.
“even while those they elect work to eliminate just those”
Exactly, because those elected people really are not part of “my group” they are just imposters coming from (and obediently serving) the rich plutocrats running the show.
– I know another thing we weren’t suppose to notice.
if you line any where by Chattanooga TN, your internet is really slow
http://www.theverge.com/2015/10/15/9543839/chattanooga-tennessee-just-found-out-its-getting-the-fastest-internet
werent private enterprises suppose to always be better than government ones?
oh oh…deficit is down. again
http://www.reuters.com/article/2015/10/15/us-usa-budget-idUSKCN0S92K920151015?utm_source=applenews
dont tell the GOP
imagine that, when workers are transferred to high deductible insurance, costs drop, but its because they just dont go at all. even if they are sick, even if they get enough money in their HSA (that was partnered with their new insurance). course this will lead to higher costs late as workers have skipped going fo preventative care, leading to much more costly care later
http://www.vox.com/2015/10/14/9528441/high-deductible-insurance-kolstad
so much for the theory that patients will do shopping for care. they wont. they just wont get it at all. even if they are given tools to assist them with getting the care for the lowest cost, they just skip it all together
It doesn’t take a brain surgeon to figure that one out (pun intended). Pay to see your GP for ‘preventative’ or ‘diagnostic’ care and the doc will tell you to go spend more money on tests. Then spend money to set up another appointment to review the results. Then spend more money to see a specialist and discuss treatments. Then spend money on the treatment. Then find out that you’ve been paying off your medical deductible but haven’t touched your pharmaceutical deductible.
All the while, there is no single entity that is looking out for your personal best outcome. You’ve got to be your own advocate at every step of the process. Many doctor’s need to hit monthly or yearly visit goals to keep their job, and whether they admit it or not, will suggest more frequent visits than necessary. The people doing the testing aren’t looking at your history and mentioning that you got the same tests 2 weeks ago ordered by your GP rather than specialist. The pharmacy will ship your supplies and send you the whole unsubsidized bill before bringing to your attention that there was an insurance snafu or error. There are landmines to be dodged at every step.
So, for those who can get by, ignorance is bliss. It’s six less headaches, until that is, you show up in the ER needing a six-figure emergency surgery or amputation.
I don’t want the low bidder cutting me open. I want the best surgeon I can get. We’re not talking about vending machine coffee. We’re talking about the possibility of being dead or aimed for life.
was sure I had typed the “m”
I’d like it someone could ‘aim’ me for life. ;)
50% of the public actively votes against its economic interests. Good luck changing that.
Most of them have no economic courses at all. So they believe those homey analogies that the government’s finances are just like a household. Hence, cutting spending is the route to prosperity and the worship of gold. Even in college, only the Physics students have training in system dynamics and mostly in grad school at that. As for probability theory, they have to be college graduates and unless they were Physics or Math students, most believe that everything follows a Gaussian distribution, then the are surprised by Black Swans.