A closer look, though, at the deregulatory movement of the 1970s offers some grounds for optimism. Neither Carter nor Kennedy was particularly ideologically opposed to regulation. Rather, the deregulation was due to a confluence of circumstances, not all of which could be predicted, but which one can imagine being imitated. The circumstances behind airline deregulation, which I’ll focus on here, were: (1) ideas on the shelf; (2) dissent within the regulatory bureaucracy; (3) a budding consumer movement; (4) in Kennedy’s case, the hiring of a political entrepreneur, Stephen Breyer; and (5) a fracture within the organized defenders of regulation. Few of these factors, other than the first, could have been easily predicted and, by and large, were not predicted.
This is from David R. Henderson, “The Unpredictability of Airline Deregulation: The Case of Airlines,” Defining Ideas, December 19, 2018.
I lead with a quote from a Republican official who ended up buying into deregulation during the Ford administration. This quote beautifully sums up the serendipity that helped lead to deregulation.
The fact is I didn’t have very many views [on airline regulatory policy]. I had talked to the Ford administration about some other posts in government. Then I said to myself, “You are in a time when government isn’t going to have any money; no agency is going to have any money. You aren’t going to be able to do much from the standpoint of new domestic programs. . . . But you know you have the airline deregulation issue on the table because it has already surfaced.” . . . In terms of personal reward you don’t get a chance to change things very significantly very often in your life. –John Robson, Chairman of the Civil Aeronautics Board, 1975-1977.
Read the whole thing.
READER COMMENTS
Thaomas
Dec 20 2018 at 1:59pm
Hopefully no one is ideologically opposed to regulation Regulation in good or bad depending on its cost benefit ratio.
Thomas Sewell
Dec 20 2018 at 11:48pm
Some of the problems with regulation in general are that the costs are almost always underestimated (it’s difficult to put a number on the psychological disincentives to innovation) and the regulators are generally not very good at creating a cost/benefit analysis (when they even bother to). Even private insurance companies risking their own money on underwriting judgements have a 50% variance from one adjuster to another on things like pricing the fraud risks for a company. Do you really expect someone whose pay doesn’t depend on it and who has no negative feedback for being wrong to be better at judging risk levels for others?
When you add in the special interests who typically control the regulation process and the incentives of the regulators themselves, it’s very rare to end up with a good regulation, in the sense that it optimizes for the best outcomes for the most people.
We’ve long since passed the point of turning into a negative drag on the country in every aspect of federal government regulation in the United States, so I’d certainly be comfortable with removing 99% of the regulations, then maybe adding a couple back in if there was actually a net negative affect from them.
But if you have examples of a few regulations which you think are clearly a net benefit and need to be kept, feel free to provide them for consideration.
john hare
Dec 21 2018 at 4:40am
There are a tiny handful that are realistic. Weight limits on roads to prevent excessive wear is one. Even that one has serious problems with some roads showing the wear and highway truck scales slowing commerce. Some speed limits are reasonable in some areas.
It seems to me that one of the largest negatives about depending on regulations is that the buyers fail to beware because they think it has been done for them. Licensed contractors, accredited teachers, lawyers, doctors, and such. Much of which may give some protection at the expense of considerably higher cost and less availability than if customers knew to pay attention.
Thaomas
Dec 21 2018 at 11:18am
Yes you establish the presumption that many regulations have negative cost benefit ratios. Still, it makes sense to do the analysis of each one.
robc
Dec 21 2018 at 11:46am
Its possible, even probable, that we are past the point where the law of diminishing returns means that all NEW regulations are net negative.
Before we do a cost/benefit analysis for new regulations, we first need to move back down the curve to the point where regulations can be reasonably positive, then start doing the cost/benefit analysis.
It would be blunt, but lets roll back regulations about 60 years, give it 2 years, then see what we need to add back.
robc
Dec 21 2018 at 11:51am
Below is an excerpt from a 1997 REASON interview with Ronald Coase, that I based my view in the above post on. That was 21 years ago, things could only have gotten worse (bolding is mine).
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Reason: You said you’re not a libertarian. What do you consider your politics to be?
Coase: I really don’t know. I don’t reject any policy without considering what its results are. If someone says there’s going to be regulation, I don’t say that regulation will be bad. Let’s see. What we discover is that most regulation does produce, or has produced in recent times, a worse result. But I wouldn’t like to say that all regulation would have this effect because one can think of circumstances in which it doesn’t.
Reason: Can you give us an example of what you consider to be a good regulation and then an example of what you consider to be a not-so-good regulation?
Coase: This is a very interesting question because one can’t give an answer to it. When I was editor of The Journal of Law and Economics, we published a whole series of studies of regulation and its effects. Almost all the studies–perhaps all the studies–suggested that the results of regulation had been bad, that the prices were higher, that the product was worse adapted to the needs of consumers, than it otherwise would have been. I was not willing to accept the view that all regulation was bound to produce these results. Therefore, what was my explanation for the results we had? I argued that the most probable explanation was that the government now operates on such a massive scale that it had reached the stage of what economists call negative marginal returns. Anything additional it does, it messes up. But that doesn’t mean that if we reduce the size of government considerably, we wouldn’t find then that there were some activities it did well. Until we reduce the size of government, we won’t know what they are.
Reason: What’s an example of bad regulation?
Coase: I can’t remember one that’s good. Regulation of transport, regulation of agriculture–agriculture is a, zoning is z. You know, you go from a to z, they are all bad. There were so many studies, and the result was quite universal: The effects were bad.
John Alcorn
Dec 21 2018 at 12:54pm
robc,
Thanks for posting an excerpt from the 1997 Reason interview of Ronald Coase!
Mark Z
Dec 21 2018 at 5:57pm
That depends on how we define regulation. I can absolutely see why one would categorically oppose any regulation that restricts any type of behavior that doesn’t infringe upon another’s property rights. The position is simple: an an activity is not in the interests of its participants, the participants, on balance, won’t engage in it, so barring that type of behavior is, at best, redundant, and more likely, precludes Pareto optimal exchange. In other words, someone of this persuasion (I’m fairly close to this position myself) will oppose any regulation designed to protect people from themselves. This would probably include most financial regulation.
Now, on the other had, there’s regulation that protects people from each other, like regulation against pollution. Even then, one may (I think probably should) believe that direct controls (what people usually mean by ‘regulation’) are inferior to either Pigovian taxation or the private ownership of the commons as a means of internalizing external costs.
John Alcorn
Dec 21 2018 at 9:45am
David,
You have the economist’s nose for forces and mechanisms, and the historian’s delight in contingency. If only this sort of economic history would make headway at universities!
I wonder: Might careful research (say, by foundations or think tanks) identify other areas propitious for smart deregulation, thanks to some serendipitous mix of political slack and idiosyncratic circumstances? Or can outsiders discern serendipity only after the fact?
Comments are closed.