The Only Real Regulation Reform Is Deregulation

Published June 6, 2018

In my previous article of Regulations Are Down But Not Out, I stated that:

“By the standards of competitive free markets, government agencies like the EPA can be made to operate less inefficiently but never truly efficiently. This means that the EPA, as well as other agencies and departments of the Trump Administration, should continue to focus on reducing, not ‘improving’, regulations in 2018 like they did in 2017.”

Reducing means deregulation. Deregulation is about reducing the economic and ethical burdens on businesses and consumers. This is done through removing both elements of, and entire, regulations. The focus is firstly on the unelected executive agencies. The second focus is on the legislation from the elected representatives. The third focus is on giving the judiciary less room to ‘interpret’ laws and regs in an anti-Liberty manner.

Tools like cost benefit analysis (CBA) and comparative risk assessment (CRA) can help identify existing regulations, in part or in whole, where the costs outweigh the benefits. CBA and CRA can also assist in stemming the flow of new regulations on the basis of net benefits or costs.

In undertaking CBA/CRA and trying to deregulate, it must always be kept at the front of one’s mind that every single regulation, currently on the ‘books’, will be backed by proverbial “Baptists and Bootleggers“. “Baptists” will typically include certain activists along with the relevant bureaucrats and politicians; “Bootleggers” will typically include certain lobbyists along with other bureaucrats and politicians. Individuals and groups are, more often than not, a combination of both “Baptists and Bootleggers”.

This creates a monetary and moral “Transitional Gains Trap”. As Gordon Tullock noted:

“Regulated firms often are not unusually profitable, even in industries (such as taxi-cabs) where entry is explicitly limited and prices set at supra-competitive levels. This seeming anomaly occurs because markets capitalize regulatory rents into current firm values. Gains to the first group of owners are merely transitional; later owners’ gains are zero.”

The implication then for deregulation is that:

“Just as the first generation of firm owners expended resources to obtain rents from regulation, so will subsequent generations of owners spend resources to avoid deregulation. These costs are the flip side of the rent-seeking costs. We could presumably compensate the present beneficiaries; but the political possibilities seem to be very small.”

The previous two quotes are from Chapter 3 of my 2017 publication entitled the Ten Principles of Regulation & Reform. The focus for the remainder of this article, like in the previous one, is on this book. In particular, the focus will be on the second five principles, which are concerned with the reform of regulation. The first five principles, again, are concerned with the nature of regulation. See below:

1. Regulations seldom solve problems

2. Beware of unintended consequences

3. Regulations frequently redistribute income and power

4. Few regulations are actually intended to protect consumers

5. Regulations kill

6. Cost benefit analysis can improve regulation

7. Comparative risk assessment can improve regulation

8. Repeal existing regulations before adopting new ones

9. Enforcing property rights can be superior to regulation

10. Hands off the Internet (the digital economy abhors regulation)

Chapter 6 is entitled “Cost benefit analysis can improve regulation“, whilst Chapter 7 is entitled “Comparative risk assessment can improve regulation“. CBA and CRA are both akin to two familiar tools in the world of corporate finance – ie asset valuation and risk management, respectively. They are defined in detail, for example,  in my article of No More Secret Science, Needs No More Secret Economics. In short:

“CBA is a practical microeconomics method and frame-of-mind for better informing government policy (eg economic, social and environmental) decisions regarding net benefits or costs.”

“CRA is a systematic process to estimate the level of risk related to some specific action or activity.”

Two quotes (the latter from Frank Knight) regarding CBA and CRA, for example, from Chapters 6 and 7 are:

“To make benefits and costs comparable over time requires discounting at some rate. The need for discounting reflects the general preference for the present over the future ie time opportunity cost.”

“Risk refers to a quantity susceptible of measurement, and not a true uncertainty that cannot be quantified. In [the latter] case [one] must rely on judgment to anticipate what may occur.”

Chapter 8 entitled “Repeal existing regulations before adopting new ones“, for example, respectively quotes Herbert Spencer and draws upon John Densonin the following way:

“From the Statute of Merton [of 1236] to the end of 1872, there had been passed 18,110 public Acts; of which an estimated [4/5s] had been wholly or partially repealed [mainly 1846 to 1872 ].”

“Some inspiring repeal episodes in US history include: President Thomas Jefferson at the start of the 1800s re some tax, tariff and other laws; President Andrew Jackson in the early 1800s re central banking; President Martin van Buren in the mid 1800s re financial laws; President Andrew Johnson in the mid-to-late 1800s re Southern military occupation and reconstruction; and President Ronald Reagan in the 1980s re central banking and antitrust.”

Two quotes (the former from Frédéric Bastiat) from Chapter 9 entitled “Enforcing property rights can be superior to regulation“, for example, state:

“Life, liberty, and property do not exist because men have made laws. On the contrary, it was the fact that life, liberty, and property existed beforehand that caused men to make [common] laws in the first place.”

“Along with crime, tort and contract, property is the oldest area of common law, particularly that of real or land property. Common law was historically [and very surprisingly to many nowadays] NOT government legislation or regulation driven law.”

Chapter 10 entitled “Hands off the Internet (the digital economy abhors regulation)“, for example, quotes Peter Klein as follows:

“The Internet is a case in point that Liberty is the mother of innovation. It is only thanks to market participants that the Internet became something other than a typical government program, characterized by inefficiency, over-capitalization, and irrelevance. [Ongoing] government involvement accounts for the Internet’s continuing problems and political favoritism.”

In conclusion to this article, and from the Conclusion chapter of Ten PrinciplesLlewellyn Rockwell reminds:

“Ultimately you must frame your arguments in terms of what is good for the State. And the reality is that Liberty is not usually good for the State. The State is open to persuasion, to be sure, but it usually acts out of fear, not friendship. If the bureaucrats and politicians fear backlash, they will not increase taxes or regulations. If they sense a high enough degree of public outrage, they will even repeal controls and programs [ie deregulate].”

[Originally Published at Townhall]