The strange American ardor for passing laws, the insane belief in regulation and punishment, plays into the hands of the reformers, most of them quacks themselves. Their efforts, even when honest, seldom accomplish any appreciable good. The Harrison Act, despite its cruel provisions, has not diminished drug addiction in the slightest. The Mormons, after years of persecution, are still Mormons, and one of them is now a power in the Senate. Socialism in the United States was not laid by the Espionage Act; it was laid by the fact that the socialists, during the war, got their fair share of the loot. Nor was the stately progress of osteopathy and chiropractic halted by the early efforts to put them down. Oppressive laws do not destroy minorities; they simply make bootleggers.
H.L. Mencken, Editorial in The American Mercury, 1924-05.
May 26, 2016
May 5, 2016
J.C. Carlton explains why the US government’s latest regulatory intervention in the dishwasher market is pretty much guaranteed to make dishwashers more expensive and less capable:
… it’s amazing how much doesn’t work, or works poorly because of the rules that bureaucrats come up with. Yet time and again the bureaucrat’s solution is always more cowbell. For some reason they think that because something may have worked before, it will always work as long as you just do it more. The fact is that no matter what you do, that 24% energy “savings” and 38% less water use are going to have to come from somewhere. My guess is that it will come from making dishwashers that do a very lousy job of actually washing dishes or are terribly expensive.
There’s only so much you can do. 24% less electricity means that you will have to use a smaller motor, a smaller heating element, or both. You might have to use different heating elements or motors that work at different times during the cycle. More than likely you will have to use complicated electronics to run it all. Even when you are all done with meeting the mandate, you will end up with a machine that just doesn’t work very well. Which also costs more and has to be serviced more often to boot. How much savings to you get it the reliability is halved and the truck has to keep coming out for service calls. That’s the problem with those one-dimensional rules. They tend to cost more in compliance than they actually save.
Of course the endless quest for false efficiencies does have its costs. Somehow the bureaucrats never seem to have to pay those costs in their lives, or at least aren’t effected enough by the pain to notice. I have to wonder if whoever came up with the 1 gallon toilet ever flushes. Does the Energy Star guy never have to go shopping for appliances and when he gets home finds out that it barely works?
April 14, 2016
ESR explains why the Trans-Pacific Partnership is such a huge monstrosity of regulations, crony capitalist favours to big business, anti-consumer intellectual property rules, and other mercantilist interventions in trade:
Today there’s a great deal of angst going on in the tech community about the Trans-Pacific Partnership. Its detractors charge that a “free-trade” agreement has been hijacked by big-business interests that are using it to impose draconian intellectual-property rules on the entire world, criminalize fair use, obstruct open-source software, and rent-seek at the expense of developing countries.
These charges are, of course, entirely correct. So here’s my question: What the hell else did you expect to happen? Where were you idiots when the environmentalists and the unions were corrupting the process and the entire concept of “free trade”?
The TPP is a horrible agreement. It’s toxic. It’s a dog’s breakfast. But if you stood meekly by while the precedents were being set, or – worse – actually approved of imposing rich-world regulation on poor countries, you are partly to blame.
The thing about creating political machinery to fuck with free markets is this: you never get to be the last person to control it. No matter how worthy you think your cause is, part of the cost of your behavior is what will be done with it by the next pressure group. And the one after that. And after that.
The equilibrium is that political regulatory capability is hijacked by for the use of the pressure group with the strongest incentives to exploit it. Which generally means, in Theodore Roosevelt’s timeless phrase, “malefactors of great wealth”. The abuses in the TPP were on rails, completely foreseeable, from the first time “environmental standards” got written into a trade agreement.
That’s why it will get you nowhere to object to the specifics of the TPP unless you recognize that the entire context in which it evolved is corrupt. If you want trade agreements to stop being about regulatory carve-outs, you have to stop tolerating that corruption and get back to genuinely free trade. No exemptions, no exceptions, no sweeteners for favored constituencies, no sops to putatively noble causes.
March 8, 2016
Roosevelt created the Civil Works Administration in November 1933 and ended it in March 1934, though the unfinished projects were transferred to the Federal Emergency Relief Administration. Roosevelt had assured Congress in his State of the Union message that any new such program would be abolished within a year. “The federal government,” said the President, “must and shall quit this business of relief. I am not willing that the vitality of our people be further stopped by the giving of cash, of market baskets, of a few bits of weekly work cutting grass, raking leaves, or picking up papers in the public parks.”
But in 1935 the Works Progress Administration came along. It is known today as the very government program that gave rise to the new term, “boondoggle,” because it “produced” a lot more than the 77,000 bridges and 116,000 buildings to which its advocates loved to point as evidence of its efficacy. The stupefying roster of wasteful spending generated by these jobs programs represented a diversion of valuable resources to politically motivated and economically counterproductive purposes.
The American economy was soon relieved of the burden of some of the New Deal’s excesses when the Supreme Court outlawed the NRA in 1935 and the AAA in 1936, earning Roosevelt’s eternal wrath and derision. Recognizing much of what Roosevelt did as unconstitutional, the “nine old men” of the Court also threw out other, more minor acts and programs which hindered recovery.
Freed from the worst of the New Deal, the economy showed some signs of life. Unemployment dropped to 18 percent in 1935, 14 percent in 1936, and even lower in 1937. But by 1938, it was back up to 20 percent as the economy slumped again. The stock market crashed nearly 50 percent between August 1937 and March 1938. The “economic stimulus” of Franklin Roosevelt’s New Deal had achieved a real “first”: a depression within a depression!
The stage was set for the 1937–38 collapse with the passage of the National Labor Relations Act in 1935 — better known as the Wagner Act and organized labor’s “Magna Carta.” To quote Hans Sennholz again:
This law revolutionized American labor relations. It took labor disputes out of the courts of law and brought them under a newly created Federal agency, the National Labor Relations Board, which became prosecutor, judge, and jury, all in one. Labor union sympathizers on the Board further perverted this law, which already afforded legal immunities and privileges to labor unions. The U.S. thereby abandoned a great achievement of Western civilization, equality under the law.
Armed with these sweeping new powers, labor unions went on a militant organizing frenzy. Threats, boycotts, strikes, seizures of plants, and widespread violence pushed productivity down sharply and unemployment up dramatically. Membership in the nation’s labor unions soared; by 1941 there were two and a half times as many Americans in unions as in 1935.
From the White House on the heels of the Wagner Act came a thunderous barrage of insults against business. Businessmen, Roosevelt fumed, were obstacles on the road to recovery. New strictures on the stock market were imposed. A tax on corporate retained earnings, called the “undistributed profits tax,” was levied. “These soak-the-rich efforts,” writes economist Robert Higgs, “left little doubt that the president and his administration intended to push through Congress everything they could to extract wealth from the high-income earners responsible for making the bulk of the nation’s decisions about private investment.”
Higgs draws a close connection between the level of private investment and the course of the American economy in the 1930s. The relentless assaults of the Roosevelt administration — in both word and deed — against business, property, and free enterprise guaranteed that the capital needed to jumpstart the economy was either taxed away or forced into hiding. When Roosevelt took America to war in 1941, he eased up on his anti-business agenda, but a great deal of the nation’s capital was diverted into the war effort instead of into plant expansion or consumer goods. Not until both Roosevelt and the war were gone did investors feel confident enough to “set in motion the postwar investment boom that powered the economy’s return to sustained prosperity.”
Lawrence W. Reed, “The Great Depression was a Calamity of Unfettered Capitalism”, The Freeman, 2014-11-28.
February 18, 2016
Franklin Delano Roosevelt won the 1932 presidential election in a landslide, collecting 472 electoral votes to just 59 for the incumbent Herbert Hoover. The platform of the Democratic Party whose ticket Roosevelt headed declared, “We believe that a party platform is a covenant with the people to be faithfully kept by the party entrusted with power.” It called for a 25 percent reduction in federal spending, a balanced federal budget, a sound gold currency “to be preserved at all hazards,” the removal of government from areas that belonged more appropriately to private enterprise, and an end to the “extravagance” of Hoover’s farm programs. This is what candidate Roosevelt promised, but it bears no resemblance to what President Roosevelt actually delivered.
In the first year of the New Deal, Roosevelt proposed spending $10 billion while revenues were only $3 billion. Between 1933 and 1936, government expenditures rose by more than 83 percent. Federal debt skyrocketed by 73 percent.
Roosevelt secured passage of the Agricultural Adjustment Act (AAA), which levied a new tax on agricultural processors and used the revenue to supervise the wholesale destruction of valuable crops and cattle. Federal agents oversaw the ugly spectacle of perfectly good fields of cotton, wheat, and corn being plowed under. Healthy cattle, sheep, and pigs by the millions were slaughtered and buried in mass graves.
Even if the AAA had helped farmers by curtailing supplies and raising prices, it could have done so only by hurting millions of others who had to pay those prices or make do with less to eat.
Perhaps the most radical aspect of the New Deal was the National Industrial Recovery Act (NIRA), passed in June 1933, which set up the National Recovery Administration (NRA). Under the NIRA, most manufacturing industries were suddenly forced into government-mandated cartels. Codes that regulated prices and terms of sale briefly transformed much of the American economy into a fascist-style arrangement, while the NRA was financed by new taxes on the very industries it controlled. Some economists have estimated that the NRA boosted the cost of doing business by an average of 40 percent — not something a depressed economy needed for recovery.
Like Hoover before him, Roosevelt signed into law steep income tax rate increases for the high brackets and introduced a 5 percent withholding tax on corporate dividends. In fact, tax hikes became a favorite policy of the president’s for the next ten years, culminating in a top income tax rate of 94 percent during the last year of World War II.
Lawrence W. Reed, “The Great Depression was a Calamity of Unfettered Capitalism”, The Freeman, 2014-11-28.
January 8, 2016
A lot of what constitutes “thinking like an economist” involves asking the right questions. Those questions typically involve looking for the incentives people face in a particular situation.
For instance, one response to inflation — a sustained increase in an economy’s general price level — is to think that making it illegal to charge more a fixed amount for any given product would solve the problem. That is, you see an outcome you don’t like, and without understanding why it is the way it is, you try to impose what you think is a better outcome. In the case of price ceilings, the consequence is chronic shortages.
Similarly, a common response to rising residential rents in some cities is to declare, “the rent is too damn high!” (In fact, there’s a political party in New York that actually calls itself The Rent Is Too Damn High Party.) This declaration is usually followed by a demand for regulations that would make it illegal to charge more rent than someone in authority thinks is necessary.
On the other hand, if an economist determines that rents are indeed too high in a district, she will then ask how they got that way. (The all-too-common answer — greed — doesn’t go far, because self-interest is no more a cause of high rents than air is a cause of fire.) In many cases, it’s because the supply of residential property has been artificially restricted — perhaps by building codes, minimum parking requirements, and landlords “warehousing” livable buildings in order to escape existing rent-control policies. Armed with some basic economic principles, she would try to figure out what choices people made that caused rents to rise and why they made those choices.
This is another way of saying that incentives matter.
Sandy Ikeda, “Incentives 101: Why good intentions fail and passing a law still won’t get it done”, The Freeman, 2014-11-13.
December 24, 2015
Scott Greenfield on an important legal quirk:
The inclusion of a specific mens rea requirement is common in criminal laws. For example, first degree murder usually requires the “intent to kill,” whereas lesser degree murders or manslaughters may only require “recklessness.”
So why do some laws lack a mens rea requirement? They tend (though are hardly so limited) to be regulatory laws that are backed up by criminal sanctions. There are tens of thousands of laws that demand people do or not do some remarkably inconsequential act, such as not throwing undersized fish over the side of a boat.
The way Congress compels compliance with these trivial regulations is to enforce it with a criminal sanction, such as “failure to do X is a felony punishable by up to seven million years imprisonment.” And there are, literally, tens of thousands of opportunities to visit Club Fed.
These laws have been subject to strict liability, not because they are so evil and harmful, as they are almost invariably malum prohibitum laws, wrongs only because Congress says so, not because they reflect some inherent immorality. The problem, as was made clear in the fish case or the Gibson guitar case, is that no one knows all the tens of thousands of regulations the government enacts, creating a trap for the unwary when there is no rational reason to believe that conduct is wrong, no less criminal.
Of course, as the DoJ points out, the maxim that “ignorance of the law is no excuse” (except if you’re a cop) has been around for centuries. What hasn’t been around for centuries, however, are the tens of thousands of trivial regulations that can land someone’s butt in prison just as well as a nice drug conspiracy. So Main Justice didn’t show Sensenbrenner’s bill the love.
If the bill passes, the result will be clear, said Melanie Newman, the Justice Department spokeswoman. “Countless defendants who caused harm would escape criminal liability by arguing that they did not know their conduct was illegal” she said.
By “countless,” she means too few to count. Or she means nothing other than a new law would limit prosecutors to only those defendants who deserved to be prosecuted. That would cause sad prosecutor tears.
December 15, 2015
Another older post from Megan McArdle on the nice-soundbites-but-terrible-economic-notions from the Hillary Clinton campaign to fix the prescription medicine marketplace:
Hillary Clinton thinks drug development should be riskier, and less profitable. Also, your health insurance premiums should be higher. And there should be fewer drugs available.
This is not, of course, how the Clinton campaign would put it. The official line is that Americans are just paying too darn much for drugs, and she has a plan to stop that:
- Regulate direct-to-consumer advertising more heavily, and strip its tax deductibility
- Require drug companies to spend a certain percentage of revenue on research and development, or face penalty payments and the loss of their R&D tax credit (I am inferring that this is what she is talking about, since the actual language of the proposal is long on paeans to the importance of federal research funding and short on details)
- Cap out-of-pocket costs for drugs
- Reduce the exclusivity period for biologic drugs
- Prohibit companies from making side payments to generic manufacturers to keep generic competition off the market
- Allow drug reimportation
- Require that new treatments be proved to be a substantial improvement over existing treatments — i.e., eliminate the dreaded “me too” drugs
- Allow Medicare to “negotiate” drug prices
Eliminating the side payments seems eminently sensible. (Yes, yes, you can strip my libertarian card, but market-rigging contracts shouldn’t be enforced.) It also seems reasonable to require some sort of comparative effectiveness research. Other provisions will certainly drive down drug prices, at the risk of also driving down innovation.
Still other provisions, however, are simply bad economics. In what other market do we worry about having a second product available that’s merely just as good as the first? Should we really only have one antidepressant, one statin, one blood pressure medication, and so forth? Might there be variation among patients so that drugs that are statistically about equally effective in large groups are nonetheless individually more or less effective for different people? Might one drug’s side effects be better tolerated by some patients than another’s? Might having two drugs in the category help keep prices down?
Then there is notion that we should force pharmaceutical companies to spend a set percentage of their revenues on R&D. This seems to me to be … what’s the word I am looking for? Ah, I’ve got it: “insane.”
Economically, large parts of this plan make little sense. Politically, many of these items would be very difficult to pass, not least because the Congressional Budget Office would assess the likely effects and would make it sound much less appealing than it does in a gauzy stump speech. But away from those harsh realities, purely as campaign rhetoric, it probably works very well.
December 13, 2015
Last week, Kevin Williamson attempted to explain why the Trans Pacific Partnership isn’t all that similar to an actual “free trade” agreement (and why that’s so):
Prominent among the reasons to look askance at TPP is that its text calls for the incorporation — sight unseen — of whatever global-warming deal is negotiated at the conference currently under way in Paris. It is one thing for a trade deal to incorporate changes to environmental practices — regulatory differences are an inhibitor of truly liberal trade — but there is a world of difference between incorporating specific environmental policies and incorporating environmental policies to be named later.
It would be preferable if we could simply enact a series of bilateral “Goldberg treaties,” so called in honor of my colleague Jonah Goldberg, who argued that an ideal free-trade pact would consist of one sentence: “There shall be free trade between …” But the unhappy reality is that the snouts of the nations’ sundry regulatory apparatuses are so far up the backsides of various industries and economic sectors that sorting them out requires thousands of pages of text. Consider, for example, the problem of defense-acquisition practices. Some countries have rules mandating that defense procurement be restricted to domestic firms, and some countries don’t. Coming up with a harmonized, one-size-fits-all approach is difficult; we Americans, accustomed as we are to operating in an economy that produces the best of almost everything in the world, sometimes forget that there are countries with no domestic aerospace industry or sophisticated manufacturers of military materiel. Of course Kuwait goes abroad for military gear; if memory serves, at one point their air force uniforms were made by Armani.
All of which is to say, we should expect trade deals, especially multi-lateral trade deals, to be complex, and we should expect environmental and labor standards, along with government procurement procedures and the like, to be part of the accord. There’s no getting around it. And, again, there is nothing wrong in principle with using trade accords, which have real economic bite, as a critical instrument for enforcing environmental rules and other regulatory reforms that are incorporated into trade relationships. But using TPP to commit the United States to whatever is cooked up in Paris, without an additional vote in Congress, is a poor tradeoff. It’s not often that I will turn up my nose at a trade deal — even far-from-perfect trade pacts are generally desirable — but here we should draw the line. TPP was negotiated, Congress and the public have had a chance to review the text, and Congress should reject it. That’s the system working, not the system failing to work. It’s why we have votes.
December 4, 2015
BBC Future explains why there are some very odd trains that run on British railways, but aren’t advertised or even known about by railway staff:
The Leeds-Snaith line is what rail enthusiasts call a ghost train; Snaith station, a ghost station. The webpage about Snaith on ticket sales site TheTrainLine.com warns that ticket machines are not available at the station. Nor is there a ticket office, taxi rank or cab office.
It’s one of many train services around Britain that run with empty carriages – sometimes once or twice a day, sometimes as rarely as once a week. Sometimes even ticket sellers don’t know they exist, and it takes dedicated amateurs to seek them out. So why do these trains run at all?
There is no single definition of what constitutes a ghost train, although the general consensus is that it’s when a service is so infrequent, the train becomes effectively useless. Slippery or not, though, the term “ghost train” seems apt. It implies a service that is not exactly whole – something that whispers through towns and countryside, leaving barely a dent in its wake.
Perhaps most important of all, the term ghost train implies something that only a special few know exists. The press contact of the National Rail Museum of York, for example, was baffled by my request for an interview about ghost trains, thinking I wanted to discuss “haunted items” in the museum’s collection.
Nobody knows exactly how many ghost trains there are. On the website The Ghost Station Hunters, run by rail enthusiasts Tim Hall-Smith and Liz Moralee, there are 37 listed, and those are only the stations the intrepid pair has gotten to and written about so far. Hall-Smith says he’s counted more than 50 by looking through timetables.
So what is the point of running trains that almost nobody uses or even knows about?
Given the overcrowding on Britain’s trains, it may seem odd for these empty carriages to ride the rails – or for empty stations to stand sentry over them. From 1995-96 to 2011-12, the total number of miles ridden by train passengers leapt by 91%, while the entire UK train fleet grew by only 12%.
“Ghost trains are there just for a legal placeholder to prevent the line from being closed,” says Bruce Williamson, national spokesperson for the advocacy group RailFuture. Or as Colin Divall, professor of railway studies at the University of York, puts it: “It’s a useless, limited service that’s borderline, and the reason that it’s been kept is there would be a stink if anyone tried to close it.”
That is the crux of why the ghost trains still exist. A more official term is “parliamentary trains”, a name that stems from past years when an Act of Parliament was needed to shut down a line. Many train operators kept running empty trains to avoid the costs and political fallout – and while this law has since changed, the same pressures remain.
Closing down a line is cumbersome. There must first be a transport appraisal analysing the effect of a closure on passengers, the environment and the economy. The proposal is submitted to the Department of Transport and at that point its details must be published in the press, six months ahead of the closure. Then comes a 12-week consultation period, during which time anyone is welcome to protest; public hearings are sometimes held, especially if the closure is controversial. Then, finally, the plans are submitted to the Office of Rail and Road, who decide if the line closes.
In other words, it’s cheaper to run just enough service to keep the line “active” than it is to go through the bother and cost of shutting it down.
December 2, 2015
Published on 18 Mar 2015
AIDS has killed more than 36 million people worldwide. There are drugs available to treat AIDS, but the price of one pill is incredibly high in the U.S. — coming in at 25 times higher than its cost. Why is that? In this video, we show how patent rights have created a monopoly in the U.S. market for AIDS medication, causing pills to be very expensive. In other countries, however, such as India, which does not recognize patents on AIDS medication, prices remain low. Using this example, we go over how monopolies use market power to increase prices.
November 30, 2015
Megan McArdle talks about the plight of Pennsylvania’s two NFL teams during World War Two … oh, and some boring stuff about financial regulation:
Fun fact: During the 1943 professional football season, the World War II draft had so depleted the ranks of football players that the Pittsburgh Steelers and the Philadelphia Eagles were forced to unite their teams into a joint production that became colloquially known as “the Steagles.” In a heartwarming turn, this plucky band of men went on to one of the winningest seasons in the history of Pennsylvania football. That was, alas, their only season; the next year each city fielded its own team, and the proud name of the Steagles retreated into history.
I’m beginning to think that we should revive it, however, not for football players, but for those intrepid souls who continue to fiercely agitate for the return of the Glass-Steagall financial regulations. Like the Steagles, these people are not daunted by the many obstacles in their path. Like the Steagles, they are passionate in their determination. Probably also like the Steagles, they mostly don’t know much about Glass-Steagall.
And we desperately need a name for Team Steagles, because they seem to have become a powerful force in the Democratic Party. Last night’s Democratic debate, like the first one, featured lengthy paeans to the joys, and urgency, of a modern Glass-Steagall act. Somehow, an obscure Depression-era banking regulation has turned into a banal political talking point. Or worse — a distraction.
You, like the Steagles, may not know much about Glass-Steagall. That’s all right. There is no particular reason that most of us should know about Glass-Steagall, and many people manage to live perfectly happy and fulfilling lives anyway.
November 27, 2015
Robert Tracinski on Uber as a form of “Objectivist LARP“:
If it sometimes seems like it’s impossible to restore the free market, as if every new wave of government regulation is irreversible, then consider that one form of regulation, which is common in the most dogmatically big-government enclaves in the country, is being pretty much completely dismantled before our eyes. And it’s the hippest thing ever.
I was reminded of this by a recent report about yet another attempt to help traditional taxis compete with “ride-sharing” services like Uber and Lyft: a new app called Arro, which allows you to both hail a traditional taxi and pay for it from your phone. So Arro takes a twentieth-century business and finally drags into the twenty-first century. This certainly might help improve the taxi experience relative to how things were done before. But it won’t fend off Uber and Lyft, because it doesn’t change the central issues, which are political rather than technological.
Uber has been hit with complaints that it’s running “an Objectivist LARP,” a live-action role playing of a capitalist utopia from an Ayn Rand novel. That’s pretty much what it is doing, and the results are awesome. And the benefits don’t stop with more drivers and lower rates. Uber is ploughing a fair portion of its profits into another wave of technological innovation—self-driving cars—that promises to offer even greater improvements in the future.
All of this should counter some of the despair about how to promote free markets, especially among urban elites who have been programmed by their college educations to embrace the rhetoric of the Left. Give them half a chance, and they will flock to capitalist innovations run according to the laws of the market.
The problem is that they don’t want to admit it. That’s where the euphemism “ride-sharing” comes in. To cover up the capitalistic nature of the activity, they tell themselves they’re “sharing” something that they are quite obviously paying for, and paying at market rates. Imagine what could be accomplished if they were just willing to drop the euphemisms and embrace the free market.
November 25, 2015
Eric Boehm on how well-intentioned laws can still have significant and unforeseen negative side-effects:
Brewers are facing the prospect of spending potentially thousands to determine calorie counts for every variety of beer produced. Unless they spend the money to provide the information, breweries may never get their products into chain restaurants, like Buffalo Wild Wings and Applebee’s.
As is often the case with regulations, smaller breweries stand to lose the most.
“A regional craft brewer or a major brewery can spread the cost over a much larger volume of sales and it’s not so unreasonable for them,” said Paul Gatza, a former brewer who now heads the Boulder, Colorado, based Brewers’ Association, an industry group.
“Smaller guys that are just trying to sell a keg or two here or there, they have a decision to make on whether it is worth the additional cost to try to get their beers into chain restaurants,” Gatza told Watchdog.
The Food and Drug Administration is in the process of finalizing menu labeling rules that were part of the Affordable Care Act. Intended to make Americans more aware of their dietary choices, the rules are subject to controversy on several fronts, and the FDA announced in September that implementation of the new rules would be pushed back one full year, until December 2016, as the feds try to work out the kinks.
My favourite local brewery isn’t even a micro-brewery (they’re somewhere between a pico- and a nano-brewery): every week when I drop in, there are three or four new batches ready to sample (and it’s rare that there’s anything left of last week’s offerings). If they had to spend hundreds or even thousands of dollars to comply with detailed labelling requirements for every small batch they brewed, they’d never stand a chance of making a profit. I understand the urge to ensure that people have a chance to avoid ingredients that might make them ill, but this is the sort of regulation that tilts very heavily toward the big companies that have regional or national markets. A thousand dollars per product isn’t even a drop in the bucket to them, while to a small local business, that might be more than their profit margin when you require it be done for everything they produce.
November 20, 2015
At Coyote Blog, Warren Meyer shares his concerns about the constantly increasing regulatory burden of American business:
5-10 years ago, in my small business, I spent my free time, and most of our organization’s training time, on new business initiatives (e.g. growth into new businesses, new out-warding-facing technologies for customers, etc). Over the last five years, all of my time and the organization’s free bandwidth has been spent on regulatory compliance. Obamacare alone has sucked up endless hours and hassles — and continues to do so as we work through arcane reporting requirements. But changing Federal and state OSHA requirements, changing minimum wage and other labor regulations, and numerous changes to state and local legislation have also consumed an inordinate amount of our time. We spent over a year in trial and error just trying to work out how to comply with California meal break law, with each successive approach we took challenged in some court case, forcing us to start over. For next year, we are working to figure out how to comply with the 2015 Obama mandate that all of our salaried managers now have to punch a time clock and get paid hourly.
Greg Mankiw points to a nice talk on this topic by Steven Davis. For years I have been saying that one effect of all this regulation is to essentially increase the minimum viable size of any business, because of the fixed compliance costs. A corollary to this rising minimum size hypothesis is that the rate of new business formation is likely dropping, since more and more capital is needed just to overcome the compliance costs before one reaches this rising minimum viable size. The author has a nice chart on this point, which is actually pretty scary. This is probably the best single chart I have seen to illustrate the rise of the corporate state: