This is my fifth letter on the economic issues involved in this year’s presidential election.
Mitt Romney has made excessive regulation a major issue in his campaign. He has been quoted as saying: “You have to have regulation. You need regulation for markets to work effectively. But I’m going to cut back on regulation.” Paul Ryan’s view as reflected in his budget proposal is that funding should be scaled back for agencies where budget increases have fueled an epidemic of new regulations.
The Republican mantra is that less regulation is an important objective because it promotes economic growth and reduces the size of government. The idea that less regulation in general is an important objective without discussing what needs to be regulated and how to carry out the required regulation comes from the writings of Ayn Rand.
The idea that less regulation in general is beneficial is based on the assumption that markets consist of many buyers and many sellers. The theory is that, in markets where there are many buyers and many sellers, competition will prevent or punish most negative behavior. Participants in such a market pursuing their own best interests will produce an ideal situation.
However, the organization of industries in the U.S. rarely follows this pattern. The most important form of organization in U.S. industry is oligopoly where there are ten or less sellers facing a large number of buyers. In many industries such as automobiles, airlines, aerospace, national banking and computer search engines (the list is long), there are six or less major competitors. This organizational structure increases market power, barriers to entry and collusion among the participants. Most U.S. industries present anything but a level playing field to potential new participants and customers.
Over 100 years ago anti-trust laws such as the Sherman and Clayton Acts were passed by Congress to deal with the “robber barons of industry” of the time. The Department of Justice’s Anti-Trust Division enforced these laws until the beginning of the Reagan Administration in 1981. Since then anti-trust investigations and prosecutions have been completely de-emphasized by both Republican and Democratic administrations in order to promote the ability of U.S. firms to compete in the global market place. Only the Federal Trade Commission continues to enforce anti-trust law and most of its investigations and prosecutions involve misleading advertising or overt price fixing.
The American people have to decide just what they want regulated. Clean air; clean water; safe and effective prescription drugs; an uncontaminated food supply; a transparent list of ingredients and processes involved in food production; accurate weights and measures; occupational safety; employment practices; safe, cost effective and favorable outcome producing practices of health care providers; cost effective and favorable outcome producing educational institutions; professional licensing; necessary transparency for investors and borrowers; the fiduciary duties of investment advisors and loan originators to their customers and many more would probably be on the list.
Once you have decided what you want to regulate, you need good regulations. Good regulations need to have:
1. Clear and concise statement. Lobbyists in Washington with their special interests tend to promote the length and obfuscation of objectives of regulations.
2. Reasonable reporting requirements.
3. Tailoring of reporting requirements and remedies to the size of the entity being regulated such as small, medium and large-scale firms.
4. Reasonable time for complying with regulations when their implementation is likely to be expensive.
5. Periodic review and updating of regulations.
6. Adequate funding of the responsible agency so that they can review reports, conduct investigations and pursue remedies.
If this sounds like “pie in the sky by and by,” it may be because it is in the extreme partisan environment which exists in Congress today where lobbyists routinely get what they want. Money talks in our political system. We are a plutocracy every bit as much as Russia. The only difference is that the Russians admit it.
President Obama has expended some effort to eliminate regulations which are unnecessary or ineffective. The Republican ticket seems bent on reducing all regulations whether they are necessary and effective or not in order to achieve their objective of reducing the size of government.
The Elk Ridge economist