|Economic justifications for government regulation include externalities, market sometimes less than optimal. But what does gov't. then do? Gov't. responds to its own incentives. Public interest theory: We elect good people and they do their best. But they are human so results are not as expected. Alternative is the Economic theory of regulation developed by George Stigler. Who is the highest bidder? Who has a stake?
|Supplement to the Economic theory of regulation by Yandle: Bootleggers and Baptists. Baptists lobby legislatures to shut down liquor stores on Sunday, but demand for alcohol doesn't go away and is satisfied by bootleggers. Bootleggers earn a living satisfying this demand! Upshot is that government regulation works out in complicated ways.
|Early English factory acts (early 18th century) were led by people on the legislative committees had a conflict of interest because they were the factory owners; but they caught the public interest in the name of a good cause by appealing to child labor. But their economic goals were to restrict employment however they could, which happened to coincide with public appeal. U.S. safe meat acts in the early 1900s similarly caught public eye, but refrigerated rail cars had cut into local butchers' business. What started at a State level caught on with meat packers at a Federal level. Beef from South America via improved technology of refrigeration on ships gave additional incentives for lobby to complain about food safety.
|Politics makes strange bed-fellows. One response is: Hasn't the final result worked out okay? Isn't it a good-enough by-product to have no child labor, safe meat, clean air, etc., even if the regulation came about as a result of a self-interested lobbists promoting their own agendas? Here's the problem: If someone had a personal stake that got enacted into law via lobby, what got suppressed in the process that might have served the public interest even better?! One example: Dirtier air from amendments to the Clean Air Act in the 1970s stemmed from just such lobbying, which sounded honorable but was motivated by private coal/energy producers. Scrubber manufacturers also jumped in. Catalytic converters. General Motors, EPA, Chrysler. But Honda had already developed a clean engine which was precluded and delayed by the Federal legislation as enacted.
|Should we regulate or not? What form should any regulation take? Anyone appealing to a technology-based standard is signalling a troubling warning! Examples: Electricity: Should we monitor electricity suppliers? Should a scrubber be required? Cars: Should we require a particular car? It often sounds like the government is looking to protect us, but in fact it's usually an appeal to a simultaneous interest, a conflict between a Bootlegger and a Baptist! The Baptist sounds like he's lobbying for a law that benefits us morally, but the bootlegger supplies the gap. Interest groups know they've gotten the benefit, even if it's just a few pennies at a time on the dollar that accumulate for the lobbyist or local manufacturer trying to keep out others from outside his state or outside the U.S.
|Tobacco cigarette regulation example. 1998 lawsuits brought simultaneously by various States Attorney's General against tobacco producers. An alternative of "Let's reduce teenage smoking and help health care programs" sounded appealing as a goal! Crusade to escape State taxes by cigarette producers sounded better when presented as a program to reduce teenage smoking! Billions in annual cash flow was the result for producers who signed on. Data suggests a big question: What's really going on? Why is this a law? Making it a law via lobbying or a semblance of human interest actually helped the tobacco companies! Also: the tax money generated doesn't go into programs targeted to children or smoking. Mostly it's gone into State shortfalls. The legislation only lets existing firms shut out competitors. It goes back to: Who benefits from legislation?! It's a result of a cartel created by Attorneys General in their States!
|Other interests: Tobacco farmers' side is another piece of the puzzle. Before the settlement, we subsidized farmers with a price floor to stay in the business. After the settlement, the farmers offered to sacrifice their price floor so long as they were paid off enough. And what about the lawyers? No one knows how much they got. Everyone got a piece of the pie, which all ended up coming out of the pockets of low-income smokers and taxpayers. But if you want to reduce cigarette smoking, all you have to do on economic grounds is let the price go up without government interference! All the recent legislation appears to have accomplished nothing else. Lawnmower company example: behind safety regulation lies industry regulation that helps cartels and protectionism.
|"Better theory than the one I was using!" It's not just about getting the world more competitive. How does the world work? Bootleggers and Baptist theory is in this area, called "positive economics": how does economics play out in the real world? How do we get cleaner air if we want it as average citizens? Maybe a producer weighs in because it coincides with his interests. But is there something else as a people that we could do, maybe change our legislative process? Maybe this: Pull the covers back, see who the promoters are; and then see if there are alternative rules that are less costly than the regulatory solutions promoted by the promoters! Common law. Before the EPA (1969), the states functioned individually, but after that there was a race to the top or to the bottom. But common law allowed for suing people for imposing costs on others. Variable rules--common law and state laws--were effective but were all wiped out by Federal laws. Air was empirically getting cleaner before the Federal laws kicked in. Maybe allow waivers within the Clean Air Act.