Tag Archives: regulation

Maybe Government Shouldn’t Just “Get Out Of The Way”

A number of years ago, I read a book by a well-regarded libertarian academic, arguing against most government regulation. I don’t remember a great deal of it, but I do vividly recall his argument against the FAA’s assignment of air lanes (and actually, the agency’s very existence): he argued that the choice of airplane paths should be left to the airlines. Once a couple of planes collided midair and they got sued for big bucks, airline CEOs would get together to work out routes and ensure that it didn’t happen again.

Maybe I’m just a weenie, but I’d prefer not to be on one of those planes that collided.

I thought about that argument when I read the Sunday New York Times article attributing the two Boeing disasters to lax government regulation. Evidently, the officials charged with oversight allowed Boeing to “self-certify” the safety of many of its components and processes–as a result, regulators had never independently assessed the risks of the software known as MCAS when they approved the plane in 2017.

When you put the fox in charge of the henhouse…..

It has been an article of faith of the GOP that there is just too much government regulation–their default position is that most state intrusion into the marketplace is illegitimate and unnecessary. They seem unable to comprehend why government regulations were ever created.

Not long after the events that triggered the Great Recession, the New York Times ran a column by Edward Glaeser, in which he discussed the importance of both the public and private sectors in sustaining a workable market economy. Among his points:

Markets are built on both private entrepreneurs and public law enforcement. For centuries, investors have relied on courts to enforce contracts. Who would buy a company’s shares if the law didn’t impose a fiduciary duty on their issuer? Every person with a bank account in the United States relies on the government to protect his or her assets. Taxpayers also trust that the government can make the costs of overseeing the banking system reasonable.

So who failed? Certainly, the shenanigans on Wall Street remind us that capitalists are not angels, and that unchecked, their mischief can do much harm. But the point of financial market regulation was to ensure that misbehavior would not imperil the entire system.

Are some regulations onerous? Stupid? Unneeded? Sure. But even bigger problems emerge from inadequate regulation and/or enforcement.

Glaeser was writing about the importance of government’s role in financial oversight, an issue that Elizabeth Warren has consistently raised. It takes only a short walk down memory lane to remind us of numerous others.

The BP oil spill in the Gulf has been attributed to inadequate inspections of drilling machinery; the collapse of the I35W bridge was attributed to deficient government infrastructure inspections; the mine collapse in West Virginia occurred because regulators failed to cite and punish the owner for refusing to install required safety equipment; the Enron, Worldcon and Madoff scandals were enabled by a lax SEC.

As a consequences of such inadequate oversight, thousands of people were harmed. Hundreds died.

We rely upon the Food and Drug Administration to ensure that our medications are safe and effective, our chickens free of e coli. (As I tell my students when we discuss regulatory processes, I’d just as soon not have to test the chicken I buy in the supermarket myself when I get it home.)

We rely on the Consumer Product Safety Commission to ensure that the toys we buy our children are free from toxic paint and dangerous parts.

We rely on the FAA to independently inspect the aircraft we fly in, and to regulate those flight paths so that we don’t meet midair.

Caveat emptor is no substitute for competent government oversight–and right now, Americans do not have a competent government.

 

 

A Broken Record: Socialism and Capitalism

As I often tell my students, we Americans tend to be bipolar in our approach to the world. Events, policies and people are either all good or all bad, other nations are either “evil-doers” (in George W. Bush’s awkward formulation) or “good guys,” regulation is either killing jobs or protecting children.

Everything is either/or.

Unfortunately for our ability to communicate with each other,  life and reality aren’t so neatly divided.

The recurrent hysteria (on the Right) over “socialism” and the ferocious attacks (from the Left) on capitalism are part and parcel of that unrealistic (albeit comfortingly simple) dichotomy. In the messy real world, the pertinent questions are very different–even when the people making the arguments actually are able to define their terms, which they so often can’t.

Much of the current hostility to capitalism, for example, mistakes America’s current economic reality for capitalism. In some localities, it still may be, but nationally– thanks to money in politics, lobbying by powerful interests, outright corruption and a number of other unfortunate systemic fails– what we have is mostly corporatismor crony capitalism, not the idealized market system to which conservatives and ad agencies genuflect.

Genuine market competition has considerable merits: it encourages innovation and tends to keep consumer prices affordable. If I make a better mousetrap for a better price, my business grows, I hire more workers, and consumers catch more mice for the same money.

Similarly, “socialism” isn’t a dirty word, nor does it imply totalitarian communism. It is simply the communal delivery of services. We socialize police and fire protection, public schools, parks and highways and garbage collection, among other things, because it makes practical and economic sense to provide those things communally.

The question isn’t “should we have socialism or capitalism?” The question is: what sorts of things should a society provide communally–i.e., what services should be socialized–and what goods and services should be provided by the private market?

The question also isn’t: regulation versus no regulation. The question is: what regulations?

We want rules that ensure a level playing field–that prevent a manufacturer from dumping his waste in our rivers in order to keep his costs below those of his competitors, or that prevent a group of businesses from colluding to keep prices artificially high. We don’t want rules that are poorly conceived or unnecessarily onerous–but determining which rules are appropriate and which ones aren’t requires knowing something about the activities being regulated, and making informed judgments.

It requires the sort of expertise that Trump types sneer at as “elitist.”

Too many Americans want bumper-sticker solutions to complicated problems that don’t lend themselves to simplistic approaches. They want black-and-white answers to issues that require recognizing and working within several shades of gray. Too many of America’s loudest voices use terms they can’t define (or often, spell) and fling them as epithets rather than employing them to communicate.

We may disagree about the proper way to deliver certain services–whether we should “socialize” this or that economic or social activity or leave a particular service or function to a properly and deliberately regulated market. Those debates can be productive.

Labelling everything that offends us as “socialism” or “capitalism”–depending upon which intemperate and uninformed end of the political fringe you inhabit– gets us exactly nowhere. It may make the labeler feel superior and self-satisfied, but it doesn’t help solve our complicated problems, and it pisses off the folks at the other end of the ideological spectrum.

Regulatory Capture

Those of us who teach classes in public administration routinely include lessons on what is called “regulatory capture.” That’s jargon for the “coziness” that often develops between regulators and those whom they regulate.

The more technical and “exclusive” the area being regulated, the easier it is for employees of the government agency charged with oversight, and the representatives of enterprises they are overseeing to become comfortable with each other, and to develop a trusting relationship.

The concern, of course, is that it gets too trusting, and that the oversight intended to protect the public becomes too lax.

Regulatory capture is generally not intentional–familiarity leads to comfort, and things slip between the cracks. But of course, there are also situations in which lax enforcement is, shall we say, more calculated. The question being asked in the wake of two Boeing aircraft crashes, and reports that the FAA allowed Boeing to “self-certify” the safety of its aircraft, is: which kind are we dealing with?

According to the Washington Post, Boeing and the government have long had a “special relationship.”

As a top economic adviser to President Bill Clinton, Dorothy Robyn was charged with advancing America’s aerospace industry.

Part of the job was not choosing sides between companies. But there was one exception: Boeing.

“It was the one company for which I could be an out-and-out advocate,” Robyn said Thursday. In competitions between American companies, the administration as a rule remained neutral. But Boeing’s commercial airplane division employed tens of thousands of Americans and its prime competition, Airbus, was in Europe.

“In the engines business, you can’t choose between GE and Pratt & Whitney. With Boeing, that’s it. They’re ours. It is the only sector where we have a de facto national champion and you can be an out-and-out advocate for it.”

That “special relationship” has existed for decades. Boeing makes the planes that fly as Air Force One. A former Boeing executive, Patrick M. Shanahan, was tapped by Trump to be acting defense secretary after the resignation of Jim Mattis, despite the fact that he had no prior government experience. Boeing’s business is so dependent on federal government policies that the company spent $15.1 million last year on approximately 100 Washington lobbyists.

Boeing booked a record $101.1 billion in 2018 revenue, up 13 percent from the year before, and analysts say about a quarter of that was from government contracts. In 2017, Boeing received an estimated $23.3 billion in taxpayer-funded contract awards, not including classified military funding. And its joint ventures with Lockheed Martin and Bell Helicopter Textron received $2.2 billion and $2.5 billion, respectively, in federal contract funding in 2017….

Daniel Auble, a senior researcher at the Center for Responsive Politics, called Boeing “an excellent illustration” of the “the undue influence of money in our political system.”

In the wake of the two crashes, Congress has demanded answers about FAA oversight of Boeing, including why the FAA didn’t ground the company’s planes until regulators in Europe, China, Australia and elsewhere had done so.

Some FAA personnel have complained that the agency has given Boeing too much responsibility for its own safety checks.  Concerns about a lack of rigorous oversight–especially as reports have emerged about Boeing’s “rush” to beat a rival and deliver these aircraft–is only the most recent evidence that warnings about the company’s “cozy” relationship with the government are not misplaced.

The close relationship between the Pentagon and Boeing is part of a long-standing revolving-door culture in which senior defense officials move back and forth between jobs in government and with defense contractors.

In 2004, Darleen Druyun, a high-ranking Air Force procurement official, was sentenced to prison after she admitted that she approved a purchase of 100 refueling airplanes from Boeing at an inflated price of about $20 billion to enhance her job prospects with the company. She also leaked proprietary pricing information from a competitor and helped Boeing secure a separate $4 billion as a thank you for hiring her daughter and future son-in-law.

According to Bloomberg (link unavailable)

In one previously unreported case involving a separate aircraft program, a Boeing engineer sued three years ago, claiming he was fired for flagging safety problems that might have slowed development. Boeing has denied the claims.

If the investigations now underway find evidence that regulatory oversight was lax–whether due to an excess of trust or something worse–it will be yet another item on the growing list of reasons other countries no longer feel they can trust us.

As airlines cancel several billion dollars of orders for Boeing airplanes, and the company’s stock tanks, the livelihoods of Boeing’s 153,027 employees are at risk. The economic consequences for the whole country could be very ugly.

America is about to get a lesson that our anti-government Republicans won’t like: effective regulation and oversight are essential to economic stability and growth, and only government can provide it.

 

Get The Lead Out

Doug Masson recently shared a news article and a righteous rant.

The shared article was a report on lead contamination in northwest Indiana. It seems we Hoosiers have the nation’s largest source of such contamination–not a distinction to celebrate.

The nation’s largest source of industrial lead pollution is 20 miles down the Lake Michigan shore from Chicago in Indiana, churning more than twice as much of the brain-damaging metal into the air each year as all other factories in the region combined.

The company responsible is ArcerlorMittal (a company I’d never heard of); its Burns Harbor plant is the (ir)responsible emitter. According to the report, the plant has topped the list since 2013.

The continuing coverage of Flint, Michigan’s unsafe water generally includes a recitation of the effects of lead poisoning, and they aren’t pretty. They also aren’t reversible; if a child ingests lead through the water, as in Flint, or from flaking of old paint in run-down houses, or from areas of contaminated ground (we have a number in Indianapolis’ poorer precincts), the damage to that child’s intellectual functioning is life-long.

The referenced “rant” is how Masson describes his frustration–which I share–with conservatives’ constant attack on regulation. Pollution is the poster child for why regulatory activity is an essential function of government. As Doug points out, absent regulation, it will always be cheaper to pollute the air that others breathe or the water that others drink than to dispose of the waste from your manufacturing process in a manner that doesn’t harm others.

Meanwhile, pollution means that the market is getting incomplete information about the cost of (in this case) the steel being produced. They offload some of the costs of their production onto the people suffering brain damage from the lead pollution. Those people are, in effect, subsidizing the cost of production. Because the cost of the pollution is not reflected in the price of the steel, the market gets the signal that this form of production is more efficient than it really is. Polluters are rewarded and, consequently, environmentally sound production processes are put at a competitive disadvantage because they don’t force nearby residents to subsidize the process by breathing in the tainted air.

Economists call pollutants generated by manufacturing “externalities,” and note that failing to account for them in the cost of goods being produced distorts the market and–as Doug notes–puts manufacturers who are properly disposing of their pollutants at a pricing disadvantage.

Are some regulations onerous and unnecessarily broad? Sure. Are others inadequate? Absolutely. Regulatory activity by its very nature must be calibrated–ideally, rules governing commercial enterprises should be only as restrictive as necessary to the achievement of the desired result.

When we discuss government regulatory activity in my classes, I always emphasize the inadequacy of the usual political and ideological “either/or” formulations–as I tell my students, the need for and adequacy of any particular regulation will always be what lawyers like to call “fact-sensitive.” Issuing a wholesale assault on “regulation” writ large makes no more sense than advocating the elimination of “laws” because some laws are over-broad or unnecessary.

One of the most frustrating elements of our current impoverished and dishonest political discourse is the over-simplification of issues that are complex and/or nuanced. Too much of our public debate is conducted via bumper-sticker slogans and easy, inaccurate generalizations. When it comes to protecting the environment, those formulations are not only inaccurate, they are dangerously misleading.

Most Americans want the air they breathe to be clean, the water they drink to be safe, the playground soil to be free of harmful contaminants. It would be wonderful if we could rely upon the ethics of manufacturers to ensure the safety of our environment, but we can’t. We have no choice but to rely upon the government to promulgate and enforce rules against despoiling our air and water.

Of all the many obscenities being perpetrated by the Trump administration, watching the EPA play “footsie” with favored corporate polluters while refusing to discharge its most basic responsibility–to safeguard the environment– may be the worst.

 

 

The Costs of Regulating–and Not Regulating

A few days ago, I wrote about the REINS Act, a Congressional effort to block administrative regulatory activity. A commenter asked for a discussion of what we know about the costs of regulation, so I did a bit of research.

What I discovered reinforced my belief that the answer to most questions is: “it depends,” and/or “it’s more complicated than that.”

It turns out that there is not a lot of research calculating the costs of regulatory activity, and what does exist comes to very inconsistent results. Scholars argue about how such costs should be measured, and how best to conduct accurate analyses.

Despite these uncertainties, it is standard procedure to subject proposed rules to a cost/benefit analysis before they are promulgated. Since those analyses are being conducted prior to the implementation of proposed regulations, they are based upon estimates of both the costs and the benefits, and no matter how good-faith those estimates, they are essentially guesswork.

Anti-regulation politicians who throw around huge numbers that “demonstrate” how burdensome regulations are rarely admit that there is very little agreement on those numbers, nor do they address the benefit side of the equation, so a concrete example, assessing the actual costs of regulations that have been in effect for a long enough period of time to permit more accurate assessment, is instructive.

Vanderbilt University recently studied the compliance costs the university incurred, and came up with a big number. 

So let’s see which of those nasty, costly regulations we could dispense with.

The great majority of the university’s compliance costs were connected to research. There are a number of stringent rules governing academic research: some require respecting the privacy of human subjects, others ensure that volunteers in medical studies have information they need in order to make informed decisions about their participation. Still others ensure that the research will not pose unnecessary risks to individuals or communities.

Which of those “costly” rules should we dispense with?

Universities also bear the costs of obtaining accreditation. Accrediting agencies require lots of information in order to ascertain whether a given institution of higher education is providing…what’s that called?…education. Without accreditation, students would have to make expensive decisions about attendance without knowing whether the “product” had been adequately vetted, and whether a degree from that institution would be valued or discounted by potential employers.  (Actually, I’d favor a far more rigorous examination, since some “accredited” schools hardly seem to merit that credential. But that is a post for another day.)

Universities must also comply with regulations that are generally applicable. They must, for example, abide by rules governing immigration. Would the Congressional critics of regulatory costs prefer that University personnel turn a blind eye to the immigration status of their students? What about Human Resources regulations requiring compliance with civil rights laws?

Whole industries must comply with costly regulations governing food and drugs. Even if we could measure those costs with reasonable accuracy, how should we count the benefits? How do we determine–let alone value– the number of lives saved? How do we calculate, let alone value, reductions in illnesses from impure drugs or spoiled foods?

It seems likely that the REINS Act is aimed at environmental regulations. How do we value the benefits of clean air and water?

None of this is to say that all regulatory activity is wonderful or necessary. The “take away” is that both purported costs and anticipated benefits should be viewed with healthy skepticism, and all regulations should be evaluated individually and on their own merits.

Bottom line: it is perfectly justifiable to argue that the benefits of a specific regulation are not worth the costs involved in complying with that particular regulation. But ideological arguments against an activity called “regulation” are–excuse the expression–bullshit.