“What if we can’t make government smaller?” the Niskanen Center’s Will Wilkinson asks. He says that the evidence, particularly Wagner’s Law, shows that government spending is impervious to political assault, and libertarians should make their peace with big government. Instead, libertarians should focus on reforming regulations to foster competition and the market process.
I have a different read of the evidence from Will’s. At the Learn Liberty blog, I write,
Governments do have a tendency to grow. However, the U.S. has cut government consumption significantly in the past and could do so again. The drivers of welfare spending are the aging of the population and rising health care costs, not political support for new programs.
I support those claims with a series of charts. Check it out!
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Are you an economics graduate student casting about for dissertation topics? I have a few ideas for you. As part of the rewriting of Freedom in the 50 States, I’ve been reviewing the economic literature on how various public policies affect consumer and producer surplus, deadweight loss, and so on. We use an estimate of “victim cost” for each policy to weight the policy. The weighted sum of policies comprises the freedom index. Interestingly, the literature on some public policy issues is quite thin. That makes it difficult for us to come up with weights, and sometimes we have to do no more than guess.
Without further ado, here is a list of research questions to which I for one would like to see credible answers:
- How productive are publicly owned hospitals relative to for-profit and charitable ones?
- How accurate are people in estimating how much of their state’s residents’ income is taken in state and local taxes?
- How do state-level regulatory takings compensation requirements affect local land-use regulation and economic outcomes such as housing prices and population growth?
- How does state-level eminent domain reform affect actual local eminent domain takings?
- How do laws forbidding employers from forbidding guns on their property affect employers’ liability insurance rates?
- What are the effects of state workers’ compensation laws on workers’ comp costs? What is the effect of employers’ WC coverage costs on employment and wages? How efficient are state funds relative to private insurers?
- What is the incidence of state short-term disability insurance coverage mandates? In other words, which workers lose, which ones win, and by how much? What is the effect on labor supply?
- How does mandatory paid family leave affect labor supply and wages?
- How do state mandatory E-Verify programs affect employment rates of natives and immigrants and aggregate economic growth? What are their administrative costs?
- How do state anti-discrimination laws in employment (above the federal minimum) affect lawsuits, liability insurance rates, and tort judgments against companies? How effective are they at reducing employment and wage differentials?
- How do state-mandated health insurance benefits affect premiums after the PPACA? How do direct access to provider mandates affect premiums and health care spending? What about standing referral mandates?
- How do video franchising reform and general telecom deregulation (along different dimensions) affect broadband rollout, competition, and prices?
- How does severity of occupational licensing (education and examination requirements especially), not just prevalence or existence of licensing, affect prices, wages, and deadweight loss?
- Here’s one for the political scientists: do state sunrise and sunset provisions affect occupational licensing burdens?
- What are the economic impacts of being inside versus outside the Nurse Licensure Compact? What are the effects of having a “nursing consultation exception” that permits some interstate practice?
- How does membership in the Interstate Insurance Product Regulation Compact affect the number of life insurance and annuity offerings in a state and their premiums? How does it affect wages of life insurance agents, independent versus employed? How do state form filing requirements affect these outcomes?
- How do certificate of need laws affect density of ambulatory surgery centers?
- What is the effect of state rate filing requirements for personal auto insurance and homeowners’ insurance on premiums and coverage rates (residual markets)? What about bans on certain kinds of rating, e.g., territorial?
- What is the effect of California’s Proposition 65 on prices of consumer products, manufacturing production, and manufacturing employment? How many products are not sold at all in California as a result of the law, and what are the economic losses?
- What is the effect of allowing direct-to-consumer Tesla sales on consumer surplus?
- What is the effect of requiring certificates of public convenience and necessity for household goods moving companies on prices, moving company profits, consumer surplus, and deadweight loss?
- What is the effect of general retail sales-below-cost laws on retailer margins, prices, and productivity?
- How effective are certain tort reforms, such as joint and several liability reform/abolition and punitive damages caps/abolition, on liability insurance costs?
- How does concealed carry license cost, including mandatory training, affect the number of license holders? How do various state gun regulations, such as assault weapons bans, high-capacity magazine bans, “Saturday night special” bans, licensing of gun buyers/owners, mandatory sale of locking devices, and state licensing of dealers, affect gun prices, sales, and ownership rates?
- How do happy hour bans affect alcohol sales and restaurant and bar profitability?
- How do direct-to-consumer wine shipping bans affect wine prices and sales?
- How does permitting wine and spirits sales in grocery stores affect sales?
- How does marijuana decriminalization affect consumption and producer and consumer surplus? What is the price elasticity of demand for marijuana?
- How do penalties for marijuana cultivation and distribution affect quantity supplied?
- How do Salvia divinorum bans affect consumption and producer and consumer surplus?
- What would Americans be willing to pay for greater privacy? E.g., not having fingerprints on driver’s licenses, not having SSN’s stored in government databases, not having to go through sobriety checkpoints, not being tracked by automated license plate readers, etc.?
- Do bans on home poker games affect the prevalence of such games? Do gambling penalties (felony vs. misdemeanor) affect the prevalence of illegal gambling?
- What is the price elasticity of demand for casino gambling? How do casino regulations/legalization affect consumer surplus?
- What is the size of the U.S. raw milk industry? What is the consumer and producer surplus? How would banning raw milk affect welfare?
- How have restaurant trans fat bans affected sales, prices, and consumer welfare?
- What is the consumer surplus from mixed martial arts? What are the economic effects of state legalization?
- How do mandatory state approval/accreditation and registration of private schools affect private school enrollment and competition? What about mandatory licensure of private school teachers?
- How do home school regulations affect the number of home schoolers by state?
- How do smoking bans in bars affect bar turnover, profitability, and competition? Believe it or not, no one has analyzed bars separately from restaurants, even though the effects on bars are hypothesized to be much larger.
- Do regulations on cigarette vending machines and Internet sales affect consumption?
- How did sodomy laws, gay marriage bans, and “super-DOMAs” affect the migration of gay couples? What can we infer about their effect on gay Americans’ well-being?
- How do campaign contribution limits affect would-be contributors’ welfare?
All of these policies show some variation across states, making it possible to do some research on their effects across states. Not all of them are hugely economically significant, but they are all at least somewhat controversial politically. How can legislators make informed decisions about these policies without at least rough estimates of their consequences for citizens?
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Even a small win for rolling back the state is so seldom observed that it’s worth mentioning when one happens: the medium-sized town of Portsmouth, New Hampshire (one of the most “progressive” municipalities in the state) has abolished all taxi regulations and shut down its Taxicab Commission.
Correction: the regulators voted to abolish themselves, but the city council must approve their recommendation before it comes into effect.
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George Will (Washington Post) has an interesting essay on “progressivism’s ratchet.” His “Cupcake Postulate” illustrates the dynamic: federal school lunch subsidies lead to regulation of food content,which justifies the regulation of competing foods from vending machines, and—finally—whether cupcakes sold at bake sales meet federal standards. Government authority spreads—“the cupcake-policing government” finds “unending excuses for flexing its muscles”– and soon we enter a world where officials exercise little discretion or forethought.
Swollen government has a shriveled brain: By printing and borrowing money, government avoids thinking about its proper scope and actual competence. So it smears mine-resistant armored vehicles and other military marvels across 435 congressional districts because it can.
For those interested in the connection between the regulation of school bake sales, police force militarization, and skepticism regarding foreign policy, Will has some worthwhile insights.
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Posted in Regulation on August 19, 2014 |
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Much of the work I do is in the area of regulation. It is always a challenge to convey how much the regulatory state has grown (yes, I know, we can count the pages in the Federal Register). Two scholars as the Mercatus Center (Patrick McLaughlin and Omar Al-Ubaydli) have developed RegData, a wonderful tool for measuring the size and scope of the regulatory state. The updated version of the program (currently in beta) allows one to chart the growth in regulatory restrictions between 1997 and 2012. For example, here is the chart representing the growth of regulations on an economy wide basis:
One can also examine regulations on specific industries and compare industries. For example, here is a chart on the growth of restrictions in (1) Primary and Secondary Education and (2) Scientific Research and Development Services.
As you will note, the charts do not include a legend—a flaw that I hope can be remedied. Here is a simple question on the above chart: which line represents education and which line represents scientific research and development? Hint: in one of these two sectors, the US a world leader. In the the other, it is a laggard. I wonder if we could move toward developing some testable hypotheses?
For a discussion of RegData 2.0, you can see a piece by Patrick McLaughlin at The Hill.
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The “license Raj” is an epithet often used for India’s byzantine code of rules and regulations on businesses under the central-planning system finally dismantled in part in the 1990s. The Economist applies the term to the United States, which buries entrepreneurs under layers of federal, state, and local red tape. According to the Competitive Enterprise Institute, the gross cost of federal regulations alone amounts to about $15,000 per household per year, and that doesn’t include the accumulated debt of lost growth due to regulation, which may be much higher. And none of that includes the costs of state and local regulations, such as occupational licensing, which has increased dramatically in the last 60 years, now covering up to 35% of the workforce.
The Economist cites thumbtack.com surveys showing that small business owners care more about the burden of regulation than taxation (about two-thirds of them say that they pay their “fair share” in taxes, as opposed to more or less than their fair share). This preference comes as no surprise to me. Apart from the soul-deadening effects of endlessly parsing legalese and filling out form after form, regulation also tends to substitute the grand (or petty) design of a bureaucrat or politician for the price signals the market provides. When regulation limits competition under the pretense of ensuring quality for the consumer, incumbent producers benefit, but potential upstarts lose, and so do consumers. There is a net cost to society. When local governments require construction companies to obtain permits for every little thing they do, rather than simply requiring them to post a bond and pay for any damage they may cause to local infrastructure or neighboring buildings, less desirable construction happens, and the costs of regulatory compliance are also pure loss.
The thumbtack.com ratings of state regulatory environment correlate highly with both Chief Executive magazine’s survey of CEOs on state regulation and with the regulatory index found in Freedom in the 50 States. CEOs of large companies and small-business owners really want the same thing: a streamlined government that works. We’re not as bad as Argentina or Belarus, but here in the U.S., we suffer from plenty of kludge, and everyone pays the price.
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In 2010, Congress passed the Dodd-Frank Wall Street Reform and Consumer Protection Act “to promote the financial stability of the United States by improving accountability and transparency in the financial system, to end ‘too big to fail’, to protect the American taxpayer by ending bailouts, to protect consumers from abusive financial services practices, and for other purposes.” Dodd-Frank was a massive piece of legislation (the Economist quipped that it was too big not to fail). One of the key criticisms was that so much of what Dodd-Frank aspired to do was delegated to rulemaking in the regulatory agencies. Ultimately, whether Dodd-Frank would prevent another financial crisis would depend on the quality and compatibility of some 398 rules.
One of the many targets of Dodd-Frank was the securitization process. In the days of traditional banking, banks financed their loans with deposits and then retained those loans until they matured (the “originate-to-hold” model). Because they had skin in the game, they had incentives to lend only to credit-worthy borrowers. But increasingly, this model was replaced by the “originate-to-distribute” model wherein banks would sell their loans to other parties that would, in turn, pool them and sell shares to investors (the securitization process). The securitization process changed the incentive structure. Lenders no longer had skin in the game and were thus far less interested in the question of whether borrowers could document their ability to meet their obligations. (more…)
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