I’m very sympathetic to the idea that regulation holds back growth. It’s easy to look around and find examples of regulations that protect incumbent businesses at the expense of the consumer -- for example, the laws that forbid car companies from selling directly to consumers, creating a vast industry of middlemen. You can also find clear examples of careless bureaucratic overreach and inertia, like the total ban on sonic booms over the U.S. and its territorial water (as opposed to noise limits). These inefficient constraints on perfectly healthy economic activity must reduce the size of our economy by some amount, acting like sand in the gears of productive activity.
The question is how much...If regulation is less harmful than the free-marketers would have us believe, we risk concentrating our attention and effort on a red herring...
[F]ocusing too much on deregulation might actually hurt our economy. Many government rules, such as prohibitions on pollution, tainted meat, false advertising or abusive labor practices, are things that the public would probably like to keep in place. And reckless deregulation, like the loosening of restrictions on the financial industry in the period before the 2008 credit crisis, can hurt economic growth in ways not captured by most economic models. Although burdensome regulation is certainly a worry, a sensible approach would be to proceed cautiously, focusing on the most obviously useless and harmful regulations first (this is the approach championed by my Bloomberg View colleague Cass Sunstein). We don’t necessarily want to use a flamethrower just to cut a bit of red tape.
Read the whole thing here!
Also, on Twitter I wrote a "tweetstorm" (series of threaded tweets) about the regulation debate. Here are the tweets:
1/There's been lots of discussion lately about the possible benefits of deregulation, for example this: https://t.co/lHwdb5UcKK— Noah Smith (@Noahpinion) May 7, 2016
2/It's important not to exaggerate the benefits of deregulation, since deregulation can have costs. Many regulations are there for a reason.— Noah Smith (@Noahpinion) May 7, 2016
3/For example, financial deregulation is widely blamed for the incredibly costly 2008 crisis and recession.— Noah Smith (@Noahpinion) May 7, 2016
4/And environmental regulations are what save us from having a country that looks like this: pic.twitter.com/waOBJ2FIWy— Noah Smith (@Noahpinion) May 7, 2016
5/That said, there's plenty of reason to believe lots of regulations are inefficient, resulting from capture and/or bureaucratic overreach.— Noah Smith (@Noahpinion) May 7, 2016
6/Regulation is very heterogeneous - it can't really be reduced to the number of imperative words in the Federal Register...— Noah Smith (@Noahpinion) May 7, 2016
7/...so it makes sense to approach deregulation by tackling one type of regulation at a time.— Noah Smith (@Noahpinion) May 7, 2016
8/Sensible people are doing this now. There's a big (IMO justified) focus on occupational licensing. https://t.co/8LIpdeGAIp …— Noah Smith (@Noahpinion) May 7, 2016
9/Another good area of focus is land-use regulation, especially in cities: https://t.co/1PmpxT9HqG— Noah Smith (@Noahpinion) May 7, 2016
10/Other good ones might include FDA reform: https://t.co/w5RKuEKlf6— Noah Smith (@Noahpinion) May 7, 2016
and FAA reform: https://t.co/BvBLag5pz8
11/Yet another might be a reform of the Sarbanes-Oxley act, to help companies go public: https://t.co/aZMhHN1D8I— Noah Smith (@Noahpinion) May 7, 2016
12/So there's lots to do on the deregulatory front. But in other areas, like carbon emissions, we should be *increasing* regulation.— Noah Smith (@Noahpinion) May 7, 2016
13/A single-minded blanket focus on "deregulation" will probably do more harm than good. Instead, focus on specifics. (end)— Noah Smith (@Noahpinion) May 7, 2016
The regulation issue is really a very multifaceted, complex, and important series of different issue. It's an important area of policy debate, but can't be boiled down to one simple graph - and shouldn't be boiled down to one simple slogan.