Regulations

The Republicans have been on a rant about regulations for some time now.  The media in good lapdog fashion dutifully reports their blather on this subject (and every other subject) in their usual uncritical manner.  The short and sweet version is "all regulations are evil".  This is followed by the usual nonsense, "it is bad for the economy", "it is some kind of plot to take away our liberty", etc., etc., etc.  Since all issues have two sides it goes without saying that Democrats (the un-Republicans) have never met a regulation they didn't like so all regulations are some kind of malevolent plot on the part of the Democrats to destroy the economy, take away our liberty, etc., etc., etc.

This "controversy" of course is all nonsense.  And, since Democrats don't at all believe what the Republicans say they believe, but the idiot media lets the Republicans frame the discussion, only a complete idiot would show up for the "debate" so what we usually see is the equivalent of a Republican debating an empty chair while the media pretends that news is happening.

The Republicans keep trotting this nonsense out for the reasons outlined above but it bears absolutely no resemblance to reality.  The truth is that Republicans love regulations, if you pick the right regulations, and Democrats hate regulations, if you pick the right regulations.  The devil is in the details.  There are good regulations.  There are bad regulations.  There are parts of society that are over-regulated.  There are parts of society that are under-regulated.  This leads to an obvious path forward.  Get rid of the bad regulations.  Keep good regulations.  Reduce regulations where things are over-regulated.  Increase regulations where things are under-regulated.

Of course, there is a sensible debate to be had about which are the "good" and which are the "bad" regulations.  There is another sensible debate about where society is under-regulated and where it is over-regulated.  But all I have to do is use the word "sensible" and you know that such a discussion is not going to happen in D.C.  The current popular colloquial description for an activity like this is "going out into the weeds".  Doing so is bad for ratings so everyone agrees (i.e. both the politicians and the news media) that it is a good idea to just not go there.   So they don't.  Instead we have the idiot "discussion" I have outlined above.

There is a life cycle for regulations.  We start out with a situation where there is a problem.  Over time this problem becomes apparent enough so that something resembling a consensus develops that something needs to be done.  If the government is involved (see below for a discussion on private sector regulation) then laws are passed.  This enables government departments to write regulations so they do.  Then conditions change.  But now there is a problem.  The regulations have become part of the landscape and groups have come to depend on their existence and their general form.  Any significant change is seen as detrimental to one or more of these groups.  Depending as they do on the status quo, these groups organize to resist changes (e.g. updated regulations).  On the other hand those who might benefit from the regulatory change see the benefit as strictly hypothetical so they make little or no investment in opposing the forces of stasis.  The regulations become more and more detrimental as conditions continue to evolve away from the initial situation for which the regulations were designed.  And we end up with a situation where the consensus now is that the regulations in a certain area are bad.  And we all sit around wondering why they don't get fixed.

Let me give you a specific example of the life cycle of a specific set of regulations from what is now ancient history.  Commercial airlines date back to roughly the '30s.  Flying in the early days was dangerous and expensive.  This made founding and operating an airline a very risky business.  So the federal government stepped in.  They provided various subsidies (i.e. airmail, R&D subsidies to airplane manufacturers, easy financing for airports, etc.).  This was because there was a general consensus that having airlines was a good idea.  Another thing they did was to put in regulations that made it hard to start an airline.  They also put in a lot of restrictions about where a particular airline could fly and how much they could charge for a ticket.  These regulations were designed to reduce the financial risk by reducing competition and making it easy for airlines to fly routes profitably (i.e. by setting ticket prices high).  It worked.  By the '50s we had a robust and very profitable airline industry.  It was now possible to fly quickly (compared to alternate modes of transportation) between pretty much any major city in the country.  These kinds of regulations extended to international flights so you could also fly to most major cities around the world.  In short, the subsidies (still present but at much lower levels) and the regulations resuled in the achievement of the initial goal.

But things had changed.  The regulations resulted in a monopolistic market where prices were unnaturally high.  And subsidies were no longer necessary to guarantee that planes would be designed and built and airports would be built or upgraded.  The market was now big enough and stable enough to do this without government help.  So the benefits of the regulations were pretty much a thing of the past.  But the established airlines liked things as they were.  They could make a nice profit without having to work very hard.  And the manufactures liked their subsidies even though they no longer needed them.  The people who built and upgraded airports liked the free money too.  So they all organized to keep things just the same.

They succeeded right up to the late '70s.  Government control of pricing was finally ended.  Regulations that made it hard to start a new airline were scaled way back.  (The various subsidies were also scaled back considerably over a long period of time but they are still around to some extent.)  The result is just what you would expect.  Fares plunged.  New "low cost" airlines entered the industry and old airlines jumped into the markets where they thought their competitor's prices were too high.  This has been very good for passengers in terms of price.  Service has plunged but the market has decided that cheap is what matters.  The old line airlines have had a lot of trouble.  Several of them have gone out of business completely.  The others have merged and restructured to the point that they are unrecognizable.  And, most importantly, the job of being the CEO of an airline has gone from being a cushy, prestigious, fun, and pretty easy job to a permanent throbbing nightmare.  From their perspective they were right to resist deregulation with every fiber of their being.

We have seen this same scenario play out over and over in all segments of the economy.  Businesses come to depend on a certain kind of "regulatory framework".  And it doesn't matter if the proposed change looks like a good one or a bad one.  Any change looks risky.  And, if the truth be told, regulations are the friend of big businesses.  And the more complicated the better.  The established business has figured out how to be successful in the current regulatory framework.  New competitors are at a disadvantage while they figure out how to do business.  A change to the regulatory framework can represent an opportunity for a newcomer to get a jump (competitive advantage) on the old guys.  This is what happened in the airline business.  Southwest pioneered a new business model.  It resulted in a lot of early success for Southwest.  It also required the old line airlines to change how they did business so they could catch up.  It took them a long time to make the transition.  Today, all airlines are clones of Southwest to a great extent.  If you were part of an old line airline all this change was not fun.

Then there is the captive regulator.  If businesses can work it properly they can get the regulator to work for them rather than the other way around.  This is what has happened in banking and finance.  A change to the law permitted financial institutions to literally shop around between three agencies and chose which one they would be regulated by.  If a regulator loses too many "customers" this is bad for whoever is running the agency.  So the agencies were forced to chase customers (the financial institutions they were supposed to be regulating).  This resulted in a race to the bottom.  What these institutions wanted was loose regulation.  "I'm the loosest regulator.  No I am."  After a few years of this none of the regulatory agencies were doing their job properly.  The regulatory agencies each knew that if they did their job properly then all the institutions would flee to one of the other regulatory agencies.  We all know how that turned out.  The situation has improved somewhat since.  But none of the regulatory agencies is back to where they need to be.

You may be willing to grant the specific examples I have cited but you may still be skeptical of the general proposition that businesses actually like regulation.  So let me move on to private regulation.  And this goes back a long time.  Back in colonial times a new way to heat buildings was developed.  The traditional way was to use a lot of fire places.  These were later replaced by (eventually) very sophisticated stoves.  The "Franklin" stove was quite the modern marvel when it was introduced by Ben Franklin.  (Yes, that Ben Franklin.)  The next wave of cutting edge technology was to use a boiler to heat water.  This hot water was circulated around the building to "radiators".  It was a giant improvement.  But occasionally the boiler would blow up and burn the building down.  So people started buying fire insurance.  And the fire insurance companies decided that it was in their interest to reduce the incidence of fires and explosions.  So they set up regulations for the construction and maintenance of these boiler systems.  If you didn't have a conforming system you couldn't buy fire insurance.  All of a sudden nonconforming boilers were as scarce as hens teeth.

I picked that example because it was the first example (at least in the U.S.) of private regulation.  But I am talking about a niche market.  How about something more general?  Well, in 1894 an organization called Underwriter's Laboratories was formed.  Pretty much every type of electrical gadget found in the home used to have a green "UL" sticker on it.  The idea was the same.  If something bad happened and whatever was involved did not have a UL sticker on it then someone was likely to have to cough up a lot of dough in court.  If the device had a UL sticker the device maker could at least argue that "It's not my fault.  My device was tested by UL and conformed to all appropriate safety standards".  The argument might not work all the time but it worked enough of the time to make the sticker quite valuable to device manufacturers.  And, since stores became reluctant to sell non "UL approved" devices, it kept a lot of shoddy devices off the market.  UL is still around.  It's just not as prominent as it used to be.  There are other standards laboratories and other government and non-governmental standards organizations out there that give it a run for its money.

Before wrapping things up here, let me make one purely political observation.  The airline industry was deregulated under a Democratic President, Jimmy Carter.  Carter also deregulated the trucking industry.  Moving vans and long haul truckers used to have their rates set by a department of the federal government.  The same department also had barriers to entry set up to protect the old line moving companies and trucking companies.  That's all gone.  President Clinton put together a task force chaired by Vice President Gore to review and eliminate obsolete government regulations.  They got rid of thousands of pages of them.  The Republican presidents that followed Carter (Reagan then "H W" Bush) did nothing on the regulatory front.  Nor did the Republican president that followed Clinton ("W" Bush).  There were periods under these Republicans when their party controlled both houses of congress in addition to the White House.  Yet we saw no activity on the deregulation front from either the White House or the Congress.  And the "deregulate everything" Republicans that are now so vocal were conspicuous by their silence in those days.

President Obama represents a special case.  It is obvious that he inherited horrific problems that demanded a regulatory response.  And he has stepped up to the plate in these areas.  But he has also been amenable to working to reduce unnecessary regulation in other areas.

Congratulations!  You have now arrived at the wrap up.  Regulatory reform is a thankless task.  For the reasons I have outlined above you have to fight entrenched interests to make any progress and you get no credit from those who benefit if you do your job well.  But it is nevertheless the job of our elected officials.  And it is obvious that they don't do it.  Part of the problem is certainly the fact that it is one of those "long on grief and short on glory" jobs.  But I want to note another factor.  There are two major political parties.  And the media does a thorough job of keeping us informed of who is in which party.  But I want to  categorize politicians differently.  I want to put them in one of two categories but the categories won't be their political affiliation or even where the fit on the "liberal" / "conservative" political spectrum.

The categories I am interested in are "show horse" and "work horse".  I try to pay a lot of attention to this sort of thing.  But, even so, I am not very good at it.  I used to be a fan of Anthony Weiner.  I liked what I saw of him.  I thought the first Weinergate scandal reflected poorly on his judgment and so I thought it was appropriate that he resigned.  But my opinion of him, while much diminished, was still positive.  Then Weinergate II happened.  Here things went from "poorly" to totally idiotic.  But what's relevent for this discussion is a minor side effect of Weinergate II.  It came out that Weiner was all show horse and no work horse.  He was an attention hog who worked hard at avoiding anything that resembled actual work.  Why didn't I notice this?  Because I am not on the inside of the U.S. House of Representatives.

I have some idea of what is going on with my own delegation.  But the only way I can form an opinion of anyone else in congress is by following the media.  The media is happy to cover "show horse" activities.  So I know who the show horses are.  But that doesn't tell you much about anything else.  Senator Ted Kennedy got his share and more of media attention.  But he also was known as a hard worker.  He spent prodigious amounts of time crafting legislation and working to get it passed.  So he is a classic example of someone who is both a show horse and a work horse.  Another example is Senator John McCain.  He spends too much time on show horse activities (e.g. Sunday talk shows).  But he also has a distinguished work horse record.  People who are work horses but don's spend much time being show horses are effectively invisible.  As are people who are neither show horses nor work horses.

It would be nice if there was ready access to accurate information on who the actual work horses are.  But that sort of thing doesn't attract eyeballs.  And attracting eyeballs is the real job of most of the beltway press.  That, and being seen as a power player.  Sigh!