Friday, January 13, 2012

The Role of Regulations in the Free Marketplace!

I smiled to myself when I heard a so-called political Independent and small business owner comment on a national television newscast that he just wanted government out of ours lives.  I think he was nervous and just parroted an empty political slogan.  More disappointing still was that the interviewer didn't probe.  Most newscasters doesn’t these days.

In regular surveys to determine why businesses lay off workers, only 13% cite regulations as a major factor. The percentage has not increased in the past few years, according to a column last month by conservative David Brooks.  He notes that only 0.18 percent of the mass layoffs last year were attributable to regulations.

Even free-market zealots admit that many businesses, thanks in part to strong lobbies, do not charge the true price for their products.  For example, long-haul trucking does not pay the true cost of the public highways they chew up.  Utility and cable companies claim it is too expensive to bury power lines, but they don't factor into their expenses the cost to the public of things like hacking street trees to death.  Outdoor billboard companies, whose only value is parasitic on public roadsides, chop down publicly owned trees (or illegally poison them) without paying the true value or replanting and never shoulder the cost of the scenic easements they destroy.

Regulations, if done properly and evenly enforced, are merely a means of adding what economists call corrective pricing or market value to compensate for spillover effects like these which are called externalities.  Coal-fired power plants don't pay the true cost they levy on the public because conservatives have blocked putting a price on carbon.  Automobile companies became conscious about safety and fuel efficiency because regulations made them realize that by failing to do so they were levying a huge spillover cost on the public.

The gentleman I noted at the beginning of this blog wanted government out of his life but I assume that didn't mean he wanted the air he and his customers and his grandchildren breathe or the water they drink or the food they eat to be unsafe.  I assume he didn't want to go without roads or streets or public safety or consumer protection from loan sharks.

Ultraconservatives argue that the votes individual consumers make in the free marketplace are a better way to make decisions about these things than might be made by representative democracies prone to winner-take-all decisions largely controlled now by special interests.

But the reason we have a mixed economy is that few of us want to wait for good roads, national defense, public safety, consumer and environmental protection and good public health until businesses react to the votes consumers make with their purchases.  And few of us are na├»ve enough to believe that we still wouldn't be subject bottom feeders.

As Brooks wrote in his column, as a reminder to other conservatives, especially those prone to hyperbole:

“There are two large lessons here. First, Republican candidates can say they will deregulate and, in some areas, that would be a good thing. But it will not produce a short-term economic rebound because regulations are not a big factor in our short-term problems.

Second, it is easy to be cynical about politics and to say that Washington is a polarized cesspool. It’s true that the interest groups and the fund-raisers make every disagreement seem like a life-or-death struggle. But, in reality, most people in government are trying to find a balance between difficult trade-offs. Whether it’s antiterrorism policy or regulatory policy, most substantive disagreements are within the 40 yard lines.”

And as far as fearing the person Newt Gingrich loves to mischaracterize as a socialist and the most dangerous President ever?

Conservative Brooks points out in his column that “Nineteen-eighty-eight, under Ronald Reagan, 1992, under George H.W. Bush and 2008, under George W. Bush, were monster years for new regulations. In his first years, Obama has not increased regulatory costs more than Reagan and the Bushes did in their final years.”

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