Michael Thomas, an economist friend at Creighton University in Omaha, Nebraska, has made an interesting conjecture (I have edited it slightly):
What has surprised me is how quickly people have converted production into alternative products (for example, local distilleries making sanitizer–extremely homogeneous). For all products that face high levels of regulation the costs of switching into new production are very high, artificially high, and the result is fewer life-saving products being made for health care workers and patients.
Of course, that’s one example. I wonder if there are others. It was the COVID-19 disease that led Michael to this thinking, but the point could easily be much more general.
We shouldn’t forget Adam Smith’s famous truth, which is that the division of labor is limited by the extent of the market. The more extensive the market, the greater will be the degree of specialization. But holding market size constant, would we have less heterogeneity (more homogeneity) of capital if we had less regulation?
READER COMMENTS
Steve
Mar 27 2020 at 5:30pm
My former employer – whose main business is the manufacture of printed circuit boards – has re-purposed a production cell to make N95 rated masks. Who would have thought?
David Henderson
Mar 27 2020 at 5:57pm
Nice. Thanks.
Thaomas
Mar 27 2020 at 5:44pm
If the regulations were not optimized with benefits of being able to change productions processes and products, probably not.
Mark Z
Mar 27 2020 at 7:14pm
I can see regulation ‘heterogenizing’ labor, e.g. occupational licensing makes going from one job to another difficult or impossible, reducing incentives to cultivate homogeneous human capital. In theory it could do the same thing for capital, it seems less obvious that it does, at least to the same extent. Or the corresponding capital regulations are just less publicized than labor regulations so they don’t seem as significant.
Alan Goldhammer
Mar 27 2020 at 7:55pm
This was not a particularly good example. Purell had a branded product that was simple to manufacture for anyone who wanted to make it at some kind of scale. I made a pint of it at home when the stores ran out (recipe is on line and simple to follow but you get a viscous liquid rather than a gel). If you are intrepid at doing an Internet search you can get this among others: https://www.bulkapothecary.com/product/raw-ingredients/unscented-bases/unscented-hand-sanitizer-gel-base/#product-reviews 10 day wait period but a gallon of the stuff should last months and is cheaper than Purell. You can always get some essential oil to scent it if you want.
Jon Murphy
Mar 29 2020 at 1:53pm
While it is true that hand sanitizer can be relatively simple to produce (here is an example from my hometown), I disagree that it is a poor example of capital homogeneity and the flexibility of production. Sure, time plays a factor and thus a relatively simple switch can occur quicker than a relatively complex switch, but the point here is that idle capital isn’t destroyed and that supply curves slope upward. People are amazingly creative when it comes to problem-solving and regulatory burdens often stop these plans before they can come to fruition.
Matthias Görgens
Mar 28 2020 at 5:33am
In nornal tines, the best and most successful kinds of regulationsnare those that are least necessary.
For example, in Germany all pork sold has be to safe to be eaten raw. But given Germans propensity to eat their pork minced and raw on a breadroll for breakfast, they’d demand those standards anyway.
About your question: I suspect the answer is, yes. But not all regulations are equal. Regulation about disclosure instead of minimum standards are more flexible.
Warren Platts
Mar 28 2020 at 1:32pm
The local glove factory (yes, quite an anachronism) here was facing a shutdown because it was deemed a “nonessential” business. So they retooled in less than a day and are mass producing reusable masks. Now they’re hiring to create a second shift.
http://www.thecourierexpress.com/coronavirus/local-companies-team-up-to-help-stop-the-spread-of/article_26cf0932-efb7-537e-b03d-e05c3c6f1970.html
Jon Murphy
Mar 29 2020 at 10:29am
Examples such as this ought to undermine your skepticism that America can adjust to international trade.
Michael
Mar 30 2020 at 9:10pm
Less regulation gives businesses more freedom and flexibility. I am not sure if less regulation means more or less homogeneity in the division of labor , my guess would be more , but the important thing is less regulation is almost always a good thing. We are all better off with less regulation
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