Tag: Regulation

Deregulation and Consumers

This week in Industrial Organization we will talk about the peculiarities of the deregulation movement that got going in the Jimmy Carter administration (?).  One peculiarity is that — like the Spanish Inquisition — no one expected the deregulation movement. Why? Because the benefits of regulation generally flowed to a nice, concentrated group of producers at the expense of diffuse, often clueless consumers.   This is pretty much the point of the Stigler-Peltzman-Becker characterizations of regulation.

A second puzzle is the public suspicion of regulation, and in particular the lack of recognition that consumers have been the overwhelming beneficiaries of the deregulation movement.  On each of these points, I refer my students to the Clifford Winston’s excellent (but somewhat dated) piece from the Journal of Economic Literature.

Derek Thompson has a quite excellent piece in The Atlantic online, “How Airline Ticket Prices Fell 50% in 30 Years (and Why Nobody Noticed).”  Well, some of us noticed, I guess, like those of us who teach IO.

Of course, deregulation has had its share of fiascoes and industry handouts as well, so perhaps that’s more etched in our brains than the radical price differences and innovation that often accompany industry deregulation.

There’s a Little Less to Explore in Minnesota

The internet lit up today when it became known that the state of Minnesota has a law on the books outlawing online education courses.  Evidently, the state decided to send off a letter notifying the rampant lawbreaker, Coursera:

The Chronicle of Higher Education reports that the state has decided to crack down on free education, notifying California-based startup Coursera that it is not allowed to offer its online courses to the state’s residents.

Alert reader “Mr. C” alerted me to this as an example of “rent seeking,” whereby the purveyor of market power erects a barrier to entry as a means to maintain its preferred status.  I wouldn’t really call this rent seeking in the conventional sense, as the state itself is simply kicking online providers in the teeth.  The state itself runs several non-online operations.  It would be rent seeking if one of the many fine private institutions went to the state to enforce the policy.

As for the policy itself, Slate online has a comical clarification.

It later was clarified that online education was okay, but the provider had to register with the state, and have its registration renewed annually.

So, what is the rationale for this?

George Roedler, manager of institutional registration and licensing at the Minnesota Office of Higher education, clarifies that his office’s issue isn’t with Coursera per se, but with the universities that offer classes through its website. State law prohibits degree-granting institutions from offering instruction in Minnesota without obtaining permission from the office and paying a registration fee…

The law’s intent is to protect Minnesota students from wasting their money on degrees from substandard institutions, Roedler says. As such, he suspects that Coursera’s partner institutions would have little trouble obtaining the registration. He says he had hoped to work with Coursera to achieve that, and was surprised when they responded with the terms-of-service change notifying Minnesota residents of the law.

The thing is, no one is wasting their money on Coursera courses, because they’re free. (Yes, says Roedler, but they could still be wasting their time.)

So the state is in the business of protecting its citizenry from wasting its time.

Unfortunately for its denizens prone to taking unlicensed and potentially time-wasting courses, within a day of the initial report the state capitulated and will allow Coursera to “operate without a license.”

The end must be nigh.

The New New Regulatory State

Earlier this week, President Obama penned an op-ed in the Wall Street Journal about his Administration’s plans for the regulatory state.  The executive branch, as its title suggests, is in charge of executing and administering the laws of the land, and the President expresses his desire to balance the free-market innovation machine while protecting public health and safety:

[C]reating a 21st-century regulatory system is about more than which rules to add and which rules to subtract. As the executive order I am signing makes clear, we are seeking more affordable, less intrusive means to achieve the same ends—giving careful consideration to benefits and costs. This means writing rules with more input from experts, businesses and ordinary citizens. It means using disclosure as a tool to inform consumers of their choices, rather than restricting those choices. And it means making sure the government does more of its work online, just like companies are doing.

As my students learn in 240, 280, and 271, the executive branch, through the Office of Management and Budget, (potentially) plays a central role in shaping regulations as they make their way through the rulemaking process.  Indeed, President Reagan issued the seminal executive order concerning benefit-cost analysis, and each President since has attempted to put his stamp on the process.

Of course, there is often a disconnect between what politicians say and what regulators actually do, here are a couple of other takes from a pair of scholars who spend more than their fair share of time thinking about administrative regulation: Stuart Shapiro and Lynne Kiesling.

Father of Deregulation Movement, Alfred Kahn

The deregulation of network industries in the 1970s is a puzzle for many political economists, as consumers generally benefited at the expense of entrenched, well-connected producers.  How did that happen?

One widely acknowledged answer is that economist Alfred Kahn, head of the Civil Aeronautics Board, played an influential role. Professor Kahn died this past week, and Thomas Hazlett has a brilliant piece in the Financial Times on Kahn’s influential role.

Those interested a more formal look at the benefits of deregulation might check out Clifford Winston’s 1993 JEL piece that scopes out the movement nicely.

And Kahn’s Ph.D. advisor was none other than Joseph Schumpeter.  How do you like that?

Always Check the Second-Order Conditions

Here’s something to consider as Wall Street gets set to report record profits — a  Sunday New York Times piece on the machinations of the derivatives market.   As it turns out, the new banking regulations tend to restrict entry and favor incumbent firms.

“When you limit participation in the governance of an entity to a few like-minded institutions or individuals who have an interest in keeping competitors out, you have the potential for bad things to happen. It’s antitrust 101,” said Robert E. Litan, who helped oversee the Justice Department’s Nasdaq investigation as deputy assistant attorney general and is now a fellow at the Kauffman Foundation. “The history of derivatives trading is it has grown up as a very concentrated industry, and old habits are hard to break.”

Sometimes known as “capture,” of course. When I learned this back in the day, my professor emphasized that capture does not mean that firms necessarily want regulation, but given that there are regulations, firms will bend them to their own advantage — especially politically connected ones.

And shouldn’t be all that surprising, even to the most optimistic of you.

Well worth reading.

UPDATE: For rather convincing rejoinders, see here and here.

“It’s like a United Nations of tobacco victims…”

File this one under truth is stranger than, well, it’s pretty strange.  The United States Food and Drug Administration (FDA), the agency responsible for regulating cigarettes — yes, you read that correctly — has proposed some innovative mandates on cigarette packaging, intended to reduce tobacco consumption.

And, here they are:

There is a whole tortured history of how the agency responsible for approving new drugs is also the agency responsible for regulating the “safety” of cigarettes, but that’s probably for another day.  For today commentary, the wise guys over at The Awl sum it up pretty nicely.

They’re all here: hole-in-the-throat guy, child at risk, toe-tag dude, skeletal cancer man, preemie, zipper-chest fella, weepy lady… it’s like a United Nations of tobacco victims.

Another place to file this is under “Health and Human Services” and its proposed tobacco strategy.