(Kudzu) Evolving Theory Recognition Effects Why OIRA?
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Transcript of (Kudzu) Evolving Theory Recognition Effects Why OIRA?
(Kudzu)
• Evolving Theory
• Recognition
• Effects
• Why OIRA?
Research Questions
•What is happening to the entry and exit of firms?
•What is the effect on systematic risk of regulated firms? Industries?
•What is the effect on economic growth and distribution of factor payments?
•What about the resilience and response of the economy to shocks? Policy shocks and otherwise.
•What is the theoretical explanation of endogenous versus exogenous regulation? How is the theory applied to White House efforts to manage the regulatory process?
Evolving Theories of Regulation
ExogenousEndogenous
Part One
No Intervention Independent Commissions Public Utility/Antitrust Government Owned
The Federal Regulatory ContinuumTHEN
NOW
Continuous Entanglement
Evolving Literature
From
Stories without Theory & Theory without Stories and Data
To
Theory with Stories and Data.
From
Rich Normative Arguments
To
Refutable Positive Statements.
George Stigler’s work on the theory of regulation is one of those rare contributions—rare for the rest of us, though not for him—which force a fundamental change in the way important problems are analyzed…
What Stigler accomplished in his Theory of Economic Regulation was to crystallize a revisionism in the economic analysis of regulation that he had helped launch in his and Claire Friedland’s work on economic regulation.
Sam Peltzman. 1976. Toward a More General Theory of Regulation. Journal of Law and Economics 19 (2): 211-40, at 211.
Why is Rent Seeking so Costly to Growth?
American Economic Review, 2003 (May): 409-414.
Kevin M. MurphyAndrei SchleiferRobert W. Vichny
The Extent of the Market and the Supply of Regulation
Casey MulliganAndrei Schleifer
Quarterly Journal of Economics, 2005 4(120): 1445-1473
Marta Modemska-Miklub and Richard Wagner. 2011. Entangled Political Economy and the Two Faces of Entrepreneurship, J. Pub Fin & Pub Ch. 28: 99-214,.
1966. Johnson. [I]n the case of pollution,… those who contaminate the environment are not charged in accordance with the damage they do... Public policies must be designed to reduce the discharge of wastes in ways and amounts that more nearly reflect the full cost of environmental contamination (119-120).
1978. Carter. In a mixed economy, like that of the United States, government regulations of the marketplace sometimes play a vital role in meeting social goals, curbing abuses or mitigating the hardships that would flow from the unconstrained flow of economic forces (206).
1981. Carter As government involvement in the economy has grown, so have the overtly political aspects of economic decisions. Representative government is quite responsive to claims from individuals, groups, or regions that proposed policies will benefit them or do them harm… Many of the recent arguments over deregulation, for example, have tended to focus less on the benefits of deregulated markets than on the economic losses of the persons or industries that have been protected in the past by Federal economic regulation (89).
1989. Reagan. [M]any firms attempt to use the regulatory process to enhance their competitive position. Barriers to entering an industry may increase with the introduction of new regulations, not only increasing profits for regulated firms, but also yielding a less efficient industry structure…Over the past 20 years some economists and political scientists (especially those of the “public choice” school) have attempted to understand what motivates different approaches to regulation. A key insight from this research is that much regulation can be explained by an interest in redistributing wealth from the general public or taxpayers to special interest groups… For example, the legislation requiring scrubbers on power plants appears to have been motivated as much by the self interest of environmentalists and high-sulfur coal miners as by a desire to promote cleaner air (191-192)
2012. Obama. [R]egulations are intended to improve the quality of life by correcting market failures that lead to unsafe living or working environments. Effective regulations put into place rules that correct for significant market failures and thus achieve greater social benefits. “Smart regulations” are those that maximize the net benefits of a regulatory action to society. Benefit-cost analysis attempts to quantify and assign dollar values to the various effects of a regulation, which can be used to determine how it can reach its goal in the most efficient manner (233).
To evaluate market outcomes, we introduce into our analysis a new, hypothetical character called the benevolent social planner. The benevolent social planner is an all-knowing, all-powerful, well-intentioned dictator., The planner wants to maximize the economic well-being of everyone in society.
Gregory N. Mankiw. 2012. Principles of Economics. Mason, OH: Southwestern Cengage Learning, 145.
The best cases for viewing the growth of knowledge as a succession of reigning paradigms…have come from the so-called “natural” or “exact” sciences, particularly physics, whereas for the social sciences the fit has not been so good. Unlike some literally earth-shaking discoveries in the natural sciences…, new paradigms in social thought seldom have totally vanquished previous ones.
Mary O. Furmer. From “State Interference” to the “Return of the Market,” Edward J. Balleisen and David A. Moss, eds. Government and Markets: Toward a New Theory of Regulation. New York: Cambridge University Press, 2010, 95.
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1920-29 1930-39 1940-49 1950-59 1960-69 1970-79 1980-89 1990-99 2000-09 2010-20*
Google Scholar Citations to Pigou, Economics of Welfare 1920 - 2020*
Counted on March 5, 2014.
Free TradeMinimum Wage
Does acceptance of scientific findings have something to do with rent protection and rent seeking?
Capernicus Galileo
Industry Differentials & Structural Change
Shall. Must. May not. Prohibited. Required.
What about the Effects? Part Three
Patrick McLaughlin
MFG
EDU
ENT
Public Utilities (some form of regulated price & rate of return):
Healthcare & Social Services (17,720,090)Banking, Credit Intermediation (2,460,400)Insurance (1,157,490)
Government Enterprises (partial ownership or private/public partnerships)
Auto Manufacturing (169,000)Education (9,500,000)Real Estate & Residential Construction (614,930)Rail (224,530)
Government Regulatory Satellites (deep agent-client relationship)
Telecommunications (860,060) Energy (309,230)
Pharmaceuticals (267,750)
Total Employment Affected: 41.0 million or 31% of total U.S. nonfarm employment.
Employment data source: Bureau of Labor Statistics, May 2012 National Industrial Specific Occupation Employment & Wages Estimate.
Source: Office of Advocacy, U.S. Small Business Administration, from data provided by the U.S. Bureau of the Census, Statistics of U.S. Business.
Why OIRA?
Refereeing the Regulators
Stationary Bandits with Promises to Keep
Part Four
Our evolving theory draws on Mancur Olson’s notion of roving and stationary bandits, which he developed in Power and Prosperity (1999) With endogenous and entangled regulation, the president must pay closer attention to the relative cost of major rules and the rate at which they are imposed on the economy, while at the same time making certain that he is delivering on regulatory promises. The opportunity cost of one rent-generating regulation is another rent-generating regulation. We assume that political competition pushes the president to behave as a stationary bandit, but that the regulatory establishment, due to agency costs, has a coordination problem. President unwittingly may move into roving bandit territory.
Politicians seek to gain and hold power through redistribution. Regulation is among items that can be used to redistribute wealth. Within the polity there are interchangeables, influentials, and essentials. Theirs is a theory of winning coalitions made up of essentials. Each party is necessary, but not sufficient. It takes all to provide a critical element in the selectorate that keeps the political deals in place.
Bruce Bueno de Mesquita and Alastair SmithThe Dictator’s Handbook, 2011
Dima Shamoun
The Propensity to Truck, Barter & Impede Exchange. Economics Dissertation, George Mason University, 2014.
The Hybrid Good
Environmental regulations offer the most productive way for stationary bandits to satisfy the essentials. Such goods are hybrids. They have a public component—environmental quality—and a private component—restrictions on output and other differential effects.
Stationary Bandits with Promises to Keep
Evidence: 1.Presidents accelerate production of “good” rules and reverse production of “bad” ones…while maintaining OIRA reviews.2.Presidents vary review time to minimize announcement effect of costly regulations at strategic times.3.Presidents favor hybrid (EPA) rules in the review process, relative to other major rules.
de Rugy V, Davies A. 2009. Midnight Regulations and the Cinderella Effect. Journal of Socioeconomics38: 886–890.
Dudley, S.E. 2009. Regulatory Activity in the Bush Administration at the Stroke of Midnight. Engage10: 27–29.
Vero de Rugy Antony Davis Susan Dudley
Major Rules Published by Presidential YearJanuary 1 through February 1 of the Year Following
1981 - 2012
Jerry Ellig, Patrick McGlaughlin, and John Morrall III. 2013. Continuity, change, and priorities: The quality and use of regulatory analysisacross US administrations, Regulation & Governance 7: 153–173
Develop an expert-based quality index for regulatory agency analysis provided to OIRA.Focus on OIRA review of major regulations.Statistically examine variation across George W. Bush and Barack Obama I administrations.Find a 50% increase in the flow of major rules during lame-duck period, significant deterioration of quality of analysis during lame-duck period. Not much difference between administrations.Reflects deep pressure to deliver promised regulations.
Source: Cassidy West. Center for Regulatory Studies. George Washington University.
We should call it national capitalism.
N.S.B. Gras, Capitalism—Concepts & History, 1939.
No, it should be called political capitalism.
Gabriel Kolko, The Triumph of Conservatism, 1963.
We have crony capitalism.
David Stockman, Moyers & Company, March 7, 2012.
Endogenous regulation?
