The burden of regulation

As some scholars are pointing out, the George W. Bush era was one of increasing government regulation, but, as this chart shows, it was narrowly focused.

Michael Mandel pointed this out in an article on his web log.

Yes, protecting us against terrorists, for sure, and doing a good job…but in the process making it more difficult for foreign business execs, scientists, and engineers to enter the country…and slowing down air travel…and  forcing telecom companies to open up holes in their systems….and so forth.

I’m not arguing that these actions are or are not necessary. But many of the mandates created by  Homeland Security are de facto regulations that have imposed an enormous economic burden on the country over the past ten years.

Mike Konzai responded on his Rortybomb web log with the above chart and more detailed analysis. As he noted, financial regulation was kept to a minimum.  The number of employees of the Office of Thrift Supervision declined (you would expect a slight increase to keep up with population growth).  The Commodity Futures Trading Commission had a mere 122 employees, the lowest level since 1984, attempting to track a financial services industry with thousands and thousands of employees.  At the same time the Patent and Trademark Office beefed up its staff, as did the Drug Enforcement Administration.

The Bush era brought you a regulatory state of militarized borders, drug wars, strategically weakened financial regulatory bodies for convenient regulatory shopping, and aggressive use of patents to shut down competition. This is not the regulatory state I fight for.

Mandel issued a clarification, and  Konzai then backed off a bit from his original statement.

There’s a slight increase in the regulatory state when you exclude Homeland Security – on the order of 0.002% of the labor force. But we pointed out in our response that there wasn’t a general increase in regulators across the board during the past 10 years – the increases were in very specific places, and it is important to look at each. Mandel’s paper assume an across the board increase or implies an increase in something like the ”Department of Barbers”, killing small-scale innovation. But the places that put on regulators are markets that need regulators.

The FDA added workers. So did the Drug Enforcement Administration, as did the Nuclear Regulatory Commission. The Patent and Trademark Office, which went from 6,128 employees to 10,098 employees.

Do we think we’ll get “more innovation” in the nuclear energy field if we slash the Nuclear Regulatory Commission and go hard laissez-faire nuclear power markets? Or does the government have a responsibility in regulating nuclear power plants and putting on staff to investigate expanding the field, which has been a major discussion in the past 10 years?

The FDA added workers, no doubt to keep up with our slow channels for approving drugs. Notice, by adding regulators we can get drugs approved and to market faster – regulators lead to innovation. Unless we want to destroy the FDA, at which point I need to abandon this blog so I can get to my bathtub and start making “Rortybomb’s Miracle Cure for Baldness, Cancer and Depression” (fine print: does not actually cure any of those things, may cause blindness).

I assumed the increase in the Patents and Trademark Office employees was the result of corporations doing their best to rent-seek off old patents, but a smart commenter encouraged me to think it’s the opposite. It is a PTO’s employees’ job to yell “STOP!” when they think there is a bad patent, and if I am worried about an increase in nonsense patents that restrict innovation then increasing the number of these regulators is essential because the default is to accept patents.

Think about that – more regulators means more innovations and less rent-seeking. But to do that we need to really expand what we think of when it comes to what regulations does and the role the government plays in innovation.

Click on The Age of Regulation Started Ten Years Ago to read Michael Mandel’s original article in full.

Click on Digging into the Changing Regulatory State of the Past 10 Years for Konzai’s full comment on Mandel.

Click on Homeland Security and the Regulatory Burden for Mandel’s reply to Konzai.

Click on Innovation, Growth and the Regulatory State for Konzai’s final word.

The trend to increasing Homeland Security-type regulation has not changed during the Obama administration.

Click on New wiretapping mandates could harm privacy, innovation and security for an article in The Hill about the continued growth of internal security regulations and how they affect business.

What I get from this discussion is that there is little point about talking about “regulation” and “deregulation” in general.  You need to talk about what is being regulated, how it is being regulated and whether the benefits to the public of the regulation exceed the costs to the business or the individual.

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