David R. Henderson  

More from Lester Thurow

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The Uberization of Banking... What the Primaries Mean...

In my post on the late Lester Thurow on April 15, I promised to post more from his book The Zero-Sum Society. Here are some further excerpts.

Thurow as Ludwig von Mises

Proposition VII: Regulation Leads to Regulation
Since individual economic actions occur in an integrated economy, the adoption of regulations in any one sector of this economy is apt to have effects in other parts. If you protect the steel industry and raise the price of steel, you are raising the costs of building cars in the United States and reducing the competitiveness of the U.S. car industry. Thus a regulation designed to protect one group is apt to hurt another group and lead to new regulations protecting the second group. If you protect steel, you are much more likely to have to protect autos. We have already examined the spreading wave of regulations in the energy area. Each new regulation forced us to yet add another regulation.

I disagree with "have to" and "forced us," but otherwise he's spot on.

On the unfairness of price controls:

But there is also a question of equity involved. Price controls can only stop real income reductions by stopping real income increases for someone else. To hold down the price of natural gas or rents it is necessary to hold down someone's income. Let's suppose that we have decided to cushion the income shocks of market-priced natural gas or rents. This leads to the question of what is the fair way to raise the necessary revenue. Should we all have to pay through general taxation or is it fair to levy a tax on the owners of natural gas or apartments? They may be richer than the average consumer, but there also are many other even richer people who do not own natural gas or apartments. Why should they be excused from paying?

On the postal monopoly:
Since postal rates have been set at a level far above the cost of delivering much of the mail, regulations must be issued and enforced thereby stopping others from going into the first-class mail business. We are all familiar with the news story of the post office suing to stop some child from delivering local mail, but the purpose is to stop real competition. The result is a situation where the post office and postal workers have little or no incentive to cut mail delivery costs. As we have recently witnessed, this is true regardless of whether the post office is organized as a government department or as a profit-making corporation. Utilities, industrial mailing firms, and others would undoubtedly do to first-class rates what United Parcel and others have done to parcel post if given a chance. Undoubtedly there are routes in the United States that could not be competitively serviced with fifteen-cent letters. [DRH note: remember that Thurow was writing in 1979.] But if low-price mail deliveries are a national goal, then we ought to finance this goal nationally and not levy a tax on those who should be getting cheap mail deliveries because they live in places where mail can be delivered cheaply.




COMMENTS (3 to date)
Andrew_FL writes:

"Thus a regulation designed to protect one group is apt to hurt another group and lead to new regulations protecting the second group."

This reminds me of Bastiat, actually. This passage from The Law specifically:

Men naturally rebel against the injustice of which they are victims. Thus, when plunder is organized by law for the profit of those who make the law, all the plundered classes try somehow to enter — by peaceful or revolutionary means — into the making of laws. According to their degree of enlightenment, these plundered classes may propose one of two entirely different purposes when they attempt to attain political power: Either they may wish to stop lawful plunder, or they may wish to share in it.

Woe to the nation when this latter purpose prevails among the mass victims of lawful plunder when they, in turn, seize the power to make laws! Until that happens, the few practice lawful plunder upon the many, a common practice where the right to participate in the making of law is limited to a few persons. But then, participation in the making of law becomes universal. And then, men seek to balance their conflicting interests by universal plunder. Instead of rooting out the injustices found in society, they make these injustices general. As soon as the plundered classes gain political power, they establish a system of reprisals against other classes. They do not abolish legal plunder. (This objective would demand more enlightenment than they possess.) Instead, they emulate their evil predecessors by participating in this legal plunder, even though it is against their own interests.

ThaomasH writes:

Thurow's examples are good ones of how bad regulation (regulations that could never pass a cost benefit or probably even a cost effectiveness test, can engender still more regulation.

Tariffs are not the best way to protect an industry (if there were a reason to protect it). That should be done with subsidies.

Controlling the price of gas is not the best way to protect the incomes of gas consumers; some kind of tax credit would be.

And preventing competition in first class mail delivery is not the best way to subsidize the delivery of mail to out of the way places; a "universal service" obligation such as telephone companies have would be better.

Because of collective actions problems, getting good as opposed to bad regulation is not easy, especially when voters do not think like economists, but I doubt that pointing out examples of bad regulations does not help much without pointing to better alternatives or making a pretty good case that no regulation at all would be preferable.

I think it is worth pointing out that in many cases better regulations have a fiscal cost so opposition to tax increases a a basic principle of political wisdom in effect often results in bad regulation. And since bad, more intrusive, more costly regulation is in a real sense a "bigger state" than the corresponding better regulation, opposition to taxes and fiscal expenditures can in these cases lead to a bigger, more powerful state.

Trevor H writes:

I have long thought that much regulation was simply the government as the old woman who swallowed a fly, passing more and more rules to correct the problems caused by the old ones.

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