On Regulation

Regulation is government’s default (and blunt) instrument to bring about (or stop) certain behavior in response to a perceived market failure.  And there are some instances when regulation is needed, such as when dealing with certain types of pollution.  I know of no market for dealing with air pollution, so the government steps in to correct the externality.  However, we’ve completely neglected free market ideas and relied too much on government intrusion into the free market.

There are some that say “markets fail, use government.”  After all, this used to be very reason for regulation.  However, as Don Boudreaux explains in the latest edition of the Freeman, the lack of market perfectionism isn’t reason enough to abandon markets.   One should not assume that benevolent government bureaucrats can write perfect rules, completely devoid of unintended consequences, with zero social costs.  On the contrary, the blunt instrument that is regulation can rarely achieves the high minded effects its proliferators desire. Instead of “markets fail, use government”, think “markets fail, use markets”! 

The Competitive Enterprise Institute goes on to demonstrate that how regulation is practiced differs greatly than how it should work.  They quote from Litan and Nordhaus’s Reforming Federal Regulation, 

In theory, regulation should arise as a response to market failures. In practice, regulation is more accurately characterized as a government tool for redistributing society’s resources toward those groups that have successfully enlisted the support of the government on their behalf.

Many firms have abandoned traditional pursuits of increasing profits by conforming to consumers’ wants, and instead lobby the legislature.  But here’s a question: can you blame those that rent-seek?  As federal agencies churn out more and more regulation, firms in some markets are essentially coerced into this despicable behavior as a last resort.  Greasing the federal skids is often the only avenue left on the road to survival.  

Lastly, Dan Mitchell over at Cato argues that free markets can and do a good job at self-regulation.  I think his argument centers around the firm’s reputation as the primary tool to regulate behavior.  He uses the airline industry as an example.  In the absence of the FAA, would airlines suddenly curtail aircraft maintenance to save a buck?  Probably not.  An airline with a crashed jet on its hands due to botched maintenance would soon find itself out of business.  Reputation goes a long way in self-regulation, especially in our highly-connected world today.  Twitter, Facebook, and YouTube have transformed how quickly information is disseminated.  Bad firms can run, but not hide.

My closing thought on regulation is that it should be avoided because of its enduring nature.  Regulations are almost never rescinded.  When was the last time Congress passed a law to undo a previous law or the EPA revoked a rule?  Hence, this explains why the code of federal regulations has ballooned to 169,000 pages in length.  The permanence of federal regulation is reason enough to use it sparingly.  Changes occur rapidly in modern economies and federal rules serve only to hinder progress.   Eliminating outdated rules takes enormous effort and often bears little fruit.  We should instead rely on markets.  While not perfect, perfection isn’t the goal.

Markets fail, use markets.

Letter to Department of Labor

The Department of Labor is proposing to apply the Fair Labor Standards Act to home care-givers, and force employers to pay the federal minimum wage.  This is just another example of our government striving ever so diligently to regulate every facet of our lives. 

This letter is my comment to the DOL regarding their proposal.  Anyone can submit a comment in response to a federal agency's proposal for rule-making.  It's our only chance to be heard before regulations become the law of the land.  Comments can be submitted here: www.regulations.gov

The Department of Labor’s proposal to force employers of home care-takers to pay the federal minimum wage is both unwarranted and counterproductive.  First, and most importantly, the care-giver and employer should be free to determine the terms of employment, including the amount of wages paid.  Tens of thousands of care-givers and employers enter into mutually beneficial exchange every day without government intervention.  In the absence of coercion, care-givers will agree to terms of employment only when they feel they are being adequately compensated for their labor.  Interference from the DOL will do little to improve these mutually beneficial arrangements.

Second, forcing employers, which are often small families, to pay the federal minimum wage would reduce employment of some care-givers.  In the face of higher costs, some families may opt to either reduce the hours worked by care-givers or forgo care-takers all together.  This would not only decrease employment opportunities for care-givers, but force families into sub-optimal choices for caring for family members.  Additionally, a one-size-fits-all minimum wage doesn’t appreciate the differences in regional wage rates nor does it consider the often substantial differences in work requirements placed upon care-givers.

Lastly, the federal minimum wage can too often become the “maximum” wage.  Some care-givers may experience substantial decreases in their wages if the minimum wage is forced on employers.  Some employers who currently pay care-givers more than the federal minimum wage may feel inclined to reduce those wages in the face of a federal minimum wage.  New employers in the market may balk at paying wages above the federal minimum, depriving care-givers of income they might have enjoyed in the absence of a minimum wage.

The proposed rule seeks to be a solution to a non-problem, interfere in the otherwise mutually beneficial exchange of employers and care-givers, and potentially reduce employment opportunities for care-givers while increasing costs for employers.

White House Response - Keystone XL

Earlier this month, I dropped Obama a nice note concerning my thought on the Keystone XL project. You can read my letter here. I said I would post the White House’s response when I received it. I got it today.  Below is the email containing the response:

Since this message failed to address the matter substantively, I checked out the “recent statement” by Prez Obama.  It’s below:

What the White House fails to mention is that the State Department has been thoroughly vetting this project for 1,217 days and hasn’t yet found anything objectionable. The president’s response is filled with straw man arguments and half-truths. It’s simply unconscionable that our own government would stand in the way of creating thousands of jobs for unemployed Americans with ZERO taxpayer money involved.

Let’s be crystal clear here. Politicians will do whatever is necessary to ensure they are elected. If, on net, denying jobs to out-of-work American’s means a slightly better chance at a second term for Obama, then to hell with the unemployed. His denial of the project can have no other interpretation.