How much regulation

[seayakin]

I thought about putting this in economics but I was thinking this is as much a policy decision as it is economics. However, given the discussion that has been going on in the "What is this magic free utopia?" thread it made me think a little more about what regulations the government should put on the economy. A number of people in that thread stated that they believed regulations should provide at least some if not all of the following:

• worker safety
• environmental protection
• consumer safety
• livable wage/benefit (such as the minimum wage)

I agree with this. However, I am thinking more that the government should get out of subsidizing specific industries to favor development of a sector of the economy. I'm not convinced this does anything more than reward campaign contributors and constituents not to mention it is too unpredictable where the markets are heading. It seems that we might be better off letting the free market decide instead of using targeted subsidies such as farm subsidies, oil exploration, or solar industry subsidies to promote a specific industry. All industries then operate within the same regulation framework. Unfortunately, I also understand that safety regulations do not impact all industries equally. An oil refinery business is impacted by a lot more environmental regulations than an ice cream shop. This leads to some questions also:

• Is it politically or pactically feasible to remove targeted subsidies?
• How do you handle agencies like the NIH which may or may not provide direct subsidies but provide some infrastructure for medical research that benefits the entire industry?
• If you think the government should subsidize specific industries, please justify

I also struggle with a definition of what a targeted subsidy because it can be more than either a direct grant or specific tax break.

 

[Unabogie]

Does government funding of cancer cures help the medical lobby? Is that crony capitalism or is that just good government? Does the fact that curing cancer also helps the oncology departments of hospitals negate the obvious benefit to society?

 

[JoeTheJuggler]

A number of people in that thread stated that they believed regulations should provide at least some if not all of the following:

• worker safety
• environmental protection
• consumer safety
• livable wage/benefit (such as the minimum wage)

What about regulation for market stability (for example, protecting our food supply)? What about regulations that encourage innovation (such as patent protection for big drug companies--in a free market, there would be little incentive to do R&D for new drugs since the price would drop as soon as anyone else started producing that drug as a generic?

What about consumer protections? Food safety? Drug safety and effectiveness? Health code enforcement in restaurants, etc.?

Yes, I think the government should definitely subsidize and regulate specific industries for the public good.

 

[Dymanic]

The problem with "letting the free market decide" is that individuals (or organized groups of individuals) seeking to benefit their own interests will, in the absence of artificial constraints, almost inevitably act against the interests of society as a whole, and that it makes rational sense for them to do this even though they ultimately suffer the consequences right along with everyone else. It's called "the tragedy of the commons".

 

[seayakin]

Does government funding of cancer cures help the medical lobby? Is that crony capitalism or is that just good government? Does the fact that curing cancer also helps the oncology departments of hospitals negate the obvious benefit to society?

I can see your point and that is why I wouldn't strongly advocate for what I suggest in the OP.

What about regulation for market stability (for example, protecting our food supply)? What about regulations that encourage innovation (such as patent protection for big drug companies--in a free market, there would be little incentive to do R&D for new drugs since the price would drop as soon as anyone else started producing that drug as a generic?

What about consumer protections? Food safety? Drug safety and effectiveness? Health code enforcement in restaurants, etc.?

I think some of this is covered in consumer protection and environmental protections. These regulations don't say that restaurants only have to worry about food safety but food manufacturers don't so they are across the board. The patent/copyright protect I would add to my list but again this could continue to be across all markets.

The problem with "letting the free market decide" is that individuals (or organized groups of individuals) seeking to benefit their own interests will, in the absence of artificial constraints, almost inevitably act against the interests of society as a whole, and that it makes rational sense for them to do this even though they ultimately suffer the consequences right along with everyone else. It's called "the tragedy of the commons".

I'm not sure I understand your point. I wasn't suggesting that we don't have any regulations. Only that we don't have subsidies targeting specific industries.

 

[seayakin]

Maybe some clarification would be helpful. Ultimately, should the government be promoting some industries over others?

 

[Brown]

I just want to make the point that government regulation is not solely directed to putting burdens on people or businesses. It's not even predominanty directed to it, and most of the time does not have that effect.

It is also a myth that regulations all tend to empower the government at the expense of the public. Most regulations do not do this. Further, there are a surprising number of regulations that benefit the public at the expense of the government.

In fact, most regulations tend to be of the boring-but-necessary type and most cause no controversy.

So when someone starts to talk about "regulation" in general or the number of regulations or the amount of regulation or the evil of regulation, I listen for (or ask for) some specifics. Speaking in generalities usually isn't very honest or productive.

 

[JoeTheJuggler]

Maybe some clarification would be helpful. Ultimately, should the government be promoting some industries over others?

Different industries aren't usually in competition with each other, are they?

As for government regulation and support of some industries: again, we should do this when it's in the nation's interest.

For example, we subsidize food crops (and in the famous case Wickard v. Filburn, we regulate any activity that might destabilize the market) so that we can have a stable market on those crops in order to guarantee a stable food supply.

We don't do anything similar, for example, for the video game industry. For example, there is no national interest in leveling out very good and very bad years in that industry. (There might be a national interest in regulating this industry for other reasons: intellectual property, protecting minors from exposure to violence or whatever, but none of these possible interests supports any subsidy for that industry.)

 

[JoeTheJuggler]

I think some of this is covered in consumer protection and environmental protections.

And these are examples of government regulation, right?

These regulations don't say that restaurants only have to worry about food safety but food manufacturers don't so they are across the board.

I don't follow. There certainly are regulations that apply only to restaurants and regulations that only apply to food manufacturers.

The patent/copyright protect I would add to my list but again this could continue to be across all markets.

I don't understand. Patent protection on novel drugs can't possibly apply across all markets. The regulations are specific to that industry.

 

[seayakin]

And these are examples of government regulation, right?

Yes, I see consumer protection as a form of regulation.

I don't follow. There certainly are regulations that apply only to restaurants and regulations that only apply to food manufacturers.

I don't understand. Patent protection on novel drugs can't possibly apply across all markets. The regulations are specific to that industry.

Maybe I can clarify by looking at a specific regulation.

C) Raw eggs shall be received in refrigerated equipment that maintains an ambient air temperature of 7oC (45oF) or less.

FDA Reg

Any company who receives eggs (I assume as part of either for resale in restaurants or stores or in food processing and manufacture) are required to follow this regulation. Obviously, this regulation may never apply to mechanics shop if they never receive and sell eggs but I don't see this as a targeted regulation.

For instance, would the FDA ever favor food manufacturers over restaurants in handling eggs except where it has to do with consumer safety?

I'll have to say I'm fairly ignorant of most regulations so their may be examples counter to this. However, it seems I have heard of examples where companies etc. were able extend patents benefiting only themselves.

 

[Corsair 115]

We don't do anything similar, for example, for the video game industry. For example, there is no national interest in leveling out very good and very bad years in that industry. (There might be a national interest in regulating this industry for other reasons: intellectual property, protecting minors from exposure to violence or whatever, but none of these possible interests supports any subsidy for that industry.)

Where would tax credits and incentives to lure a given industry to one area over another fall? For example, there is some rather fierce competition between U.S. states and Canadian provinces using tax credits and incentives to attract film and television production to that particular state/province over another.

As the video game industry gets ever larger, I wouldn't be surprised to see the same sort of tax credit/incentive system used to lure that industry to one locale over another.

 

[seayakin]

Where would tax credits and incentives to lure a given industry to one area over another fall? For example, there is some rather fierce competition between U.S. states and Canadian provinces using tax credits and incentives to attract film and television production to that particular state/province over another.

As the video game industry gets ever larger, I wouldn't be surprised to see the same sort of tax credit/incentive system used to lure that industry to one locale over another.

This is a good point. Rhode Island actually lured software game company away from Massachusetts with some large tax breaks. If memory serves, I think there was even a little bit of a bidding war going on for this company.

 

[RandFan]

I approve of this thread.

FWIW: I think there is a lot of bad regulation. I think the questions about regulation are difficult as there are so many trade offs and unforeseen consequences of regulation. Using bad regulation to attack regulation in general is fallacious.

 

[JoeTheJuggler]

Any company who receives eggs (I assume as part of either for resale in restaurants or stores or in food processing and manufacture) are required to follow this regulation. Obviously, this regulation may never apply to mechanics shop if they never receive and sell eggs but I don't see this as a targeted regulation.

For instance, would the FDA ever favor food manufacturers over restaurants in handling eggs except where it has to do with consumer safety?

I still don't get what you're after. Egg handling regulations only apply to those who handle eggs [ETA: including entities that used to now but now do handle eggs], and they're in place because there is a national interest in protecting consumers from spoiled eggs (and also therefore protecting the egg marketers from market/price fluctuations due to fears of spoiled eggs).

Is there a kind of regulation that exists that you think ought not?

I get the sense (but could be wrong) that you're trying to argue against specific regulations (where reasonable minds can disagree on the relative value of the cost vs. benefits wrt the national interest at stake), but you're trying to phrase it as a general political philosophy--about what general type of regulation is acceptable.

 

[JoeTheJuggler]

Where would tax credits and incentives to lure a given industry to one area over another fall?

I guess I took the OP to be talking about federal regulations, so from a federal point of view, there isn't much that goes to the idea of luring businesses away from some areas and to others. (That would be an issue for state or local governments, though.)

However, more broadly, pretty much every regulation that supports an industry can be seen that way. For example, a tax credit or subsidy for oil extraction is available to anyone that qualifies for it--not just companies that currently do it. You could say that it entices companies to get into the oil extraction industry. That incentive is part of the national interest (or state or local interest)--that is, that is the very point of the regulation.

Again, we can debate the pros and cons of those specific regulations (whether or not they're a good idea) without some general principle about all regulations.

Personally, for example, I think the oil and natural gas industry "subsidies" no longer make any sense and should be ended. I don't hold that position because I think it's always wrong to have tax breaks, exemptions or even outright subsidies that support a specific industry.

 

[JoeTheJuggler]

Using bad regulation to attack regulation in general is fallacious.

I think that's what I'm concerned about. We can discuss whether or not a given regulation (or set of regs) is good or bad (based generally on whether or not it reflects a national interest) without having to formulate a broad new philosophy of regulation.

 

[JoeTheJuggler]

This is a good point. Rhode Island actually lured software game company away from Massachusetts with some large tax breaks. If memory serves, I think there was even a little bit of a bidding war going on for this company.

I think you're pointing out that different levels of government (different potential regulators) don't always share the same interests.

If the federal government, for example, thought this bidding war sort of thing was bad for the country, they could pass regulations to prevent it. (The Supremacy Clause pretty much acknowledges that when national and state interests conflict, the national interest trumps.)

And we could take the issue the other direction (as Corsair did) and note that sometimes what is in a nation's interest might conflict with another nation's interest. Conceivably, such regulations could even conflict with international interests (such as tariff and trade wars), in which case we'd need to resolve the issue at an international level (with treaties, agreements, etc.)

 

[Travis]

We've heard much about how the EPA is supposedly a huge job killer. I have yet to hear specifics on how this happens.

 

[JoeTheJuggler]

The problem with "letting the free market decide" is that individuals (or organized groups of individuals) seeking to benefit their own interests will, in the absence of artificial constraints, almost inevitably act against the interests of society as a whole, and that it makes rational sense for them to do this even though they ultimately suffer the consequences right along with everyone else. It's called "the tragedy of the commons".

Well said.

 

[Dymanic]

I'm not sure I understand your point. I wasn't suggesting that we don't have any regulations. Only that we don't have subsidies targeting specific industries.

Ag subsidies are a case in point.

Farmers don't farm in order to provide our nation with a stable food supply. They do it to earn a profit. If the free market alone is making the decisions, and the decison happens to be that some farmers can't even make enough to meet their expenses, then packing it in and heading off to find other work may not merely be the rational course of action for them; it may be the only choice. If the free market then decides that some time is required to allow this fairly inflicted economic wound to heal, and that that means allowing what was once a productive farm to sit idle as an entry in the ledgers of some bank, then that's how it's going to be, and if the remaining farmers can't pull up the slack, then the nation's food supply can go jump off a bridge. Government ag subsidies came into being because it was noticed that that very thing did indeed happen rather often, and that it was not only the farmers who suffered, but everyone else as well.

Without a doubt, that system has been subject to much abuse over the years, and it's tempting to look for a simple solution like just doing away with subsidies, but the problem with simple, heavy-handed solutions to complex problems is that they usually don't work very well.