Government Don't Know Jack: Regulation

This is a multi-part series examining inherent conflicts in government and the ultimate goal of avoiding the Confucian Cycle.

This series started with an article pointing out that the government gets a piece of everybody's action through taxation.  A sensible government maximizes its revenue through policies that encourage growth.

When people feel richer, they don't mind paying more taxes and they need less government help.  Some years ago, a friend of mine "griped," "It's terrible - I paid $60,000 in taxes."  When I pointed out that he'd have been glad to earn $60,000 a few years earlier, he admitted I had a point.  A rising tide lifts all boats including the government's.

Unfortunately, human nature is such that people will lie, cheat, and steal to get more power and more money for doing less work.  Businesses who lose sight of what customers want go broke, but nothing can kill a government agency no matter how far it strays from its mission or how badly it messes up.

The Autumn 2007 issue of the Wilson Quarterly reviewed a book about the CIA.  Our article on the CIA barely scratched the surface of their failures.

Legacy of Ashes, the History of the CIA by Tim Weiner claims that the CIA has never, ever kept us informed what our enemies are doing.  They missed the outbreak of the Korean war and the Chinese attack that nearly defeated the UN forces.  They missed Russian missiles being smuggled into Cuba, they messed up the Bay of Pigs invasion, and their failed attempts to assassinate Fidel Castro motivated Lee Harvey Oswald to assassinate President Kennedy.

The CIA messes up hugely, but, as we'd expect, their budget keeps going up.  Regulators' budgets also go up no matter how badly their rules turn out.

Unfortunately, we need some rules; history shows that anarchy doesn't work.  Every society needs laws and rules to govern how people interact.

The goal should be to apply the minimum set of rules which will order society without limiting people's ability to make the economy grow, but the rule-making process is bound up in politics.  Instead of trying to write rules to make the system work, people sometimes write rules to support their personal agendas.  Lawyers love running for office so they can pass laws and then charge us big bucks to explain the laws they just passed, for example.

Regulation in the Real World

Automobile air bags went on sale in the 1970s and didn't sell - nobody wanted to buy them.

On July 11, 1984, the U.S. government required cars being produced after April 1, 1989, to have driver's side air bags or automatic seat belts.  Automatic seat belts "forced" motorists to fasten their seat belts or the car wouldn't start; those of us who experienced those abominations know how incompetent rule-writers can be.

Joan Claybrook started working with Ralph Nader in 1966 and was head of the National Highway Traffic Safety Administration (NHTSA) in the Carter administration from 1977 until 1981.

I was working with some Detroit suppliers at the time and I remember her vitriolic criticism of the auto companies.  She wanted to force them to pay for safety equipment to protect their customers.

She didn't seem to realize that car companies don't like it when customers die.  It's fine with Detroit when you wreck your car -- the insurance company buys you another one and they get another sale -- but if you die, you'll never buy from them again.

Ms. Colebrook didn't seem to understand that car companies had already offered air bags and nobody wanted to pay for them.  Over and over, she criticized Detroit for deliberately letting 5,000 or 6,000 customers per year die because they wouldn't provide air bags.  After she left the government, she became president of Public Citizen and continued to criticize car companies.  She won -- air bags were required starting in 1989.

Were the transportation people any more effective than the CIA?  Did their rules work as expected?  In a word, "No."

First, the rules were written stupidly.  The car companies warned that the proposed requirement that an air bag stop a 300 pound person from hitting the steering wheel would require such a powerful air bag that it would kill smaller people and cause injuries in low-speed crashes.  The government wrote the 300 pound rule anyway, and sure enough, air bags started killing people:

In 1990, the first automotive fatality attributed to an airbag was reported, with deaths peaking in 1997 at 53 in the United States.

Lives have been saved by air bags.

One recent study concluded that as many as 6,000 lives have been saved as a result of airbags. Given that airbags have roughly been around for 15 years, that comes out to perhaps only 400 lives per year, perhaps many of those the result of parents putting their children in the back of the car, due to airbag risk.

On the other hand, they're no substitute for seat belts.  A small-boned friend of mine who never wore a seat belt died when she ran off the road and her airbag blew her out of her car.  Another score for Ms. Claybrook!

Second, air bags are not cost-effective by any standard.  Ms. Claybrook talked of saving 5,000 or 6,000 lives per year through her wonderful regulations, but she wasn't telling the truth.

Let's credit the rule writers with saving 400 lives per year, less than one-tenth the promised number.  Was it a good idea?  Let's avoid placing value on human life by comparing the cost per life saved by airbags and the cost per life saved by other means.

Air bags cost about $100 and each vehicle has a minimum of two.  The North American market is about 10 million units per year.  20 million air bags @ $100 cost about $2,000,000,000.00 assuming the car companies don't mark them up, which is unlikely.  Saving 400 lives with air bags costs car buyers at least $2 billion per year.  Is it morally justifiable for Americans to spend $5 million dollars per life saved by requiring airbags when we can save the lives of African malaria patients for 25 cents each?

Joan Claybrook's rule writers lied to sell their program just as President Roosevelt lied to sell Social Security.  Their rules saved fewer than one tenth the lives they claimed they would save and killed people to boot.  Not only that, air bags altered driver behavior -- anecdotal evidence suggests that drivers felt safer and went faster.

Ms. Claybrook also failed to punish the auto companies.  She wanted to cost car companies money by forcing them to put something on cars they didn't want.  Now we come to a point which, if you understand it, you'll know more about America than any bureaucrat - profitable companies don't pay for anything.

Profitable companies take in more money each year than they pay out.  When you buy from a profitable company like Wal-Mart or like Detroit at the time, you pay for everything.  You pay the cost of whatever they sold you.  You pay the salary of the cash register operator.  You pay their real estate taxes or their rent.  You pay for their heat, light, air conditioning, whatever they do, whatever taxes they pay, you pay for it.

When activists like Joan Claybrook make auto companies install $2 BILLION worth of air bags per year, you and I pay the $2 billion, they don't.  Nuts to her.

Somewhere in Detroit the car companies have probably put up a statue to Joan Claybrook.  What other individual has increased their revenue by $2 billion per year without their having to worry about making customers want to pay them $2 billion?

More Subtle Regulatory Issues

The cost of air bags is particularly ludicrous, but other regulations have costs which the bureaucrats won't admit.  On p 112 of their Winter 2006 issue, the Wilson Quarterly published a picture of a man pulling a cart. The caption read:

Smithfield Market in Central London has been the site of a meat market of one sort or another for nearly a thousand years. ... A photographer chronicled life in Smithfield in 1991 before European Union hygiene regulations eliminated much of its work force ... Alf Disley, 84, spent spent more than 60 years transporting meat from sellers' stalls to to buyers' lorries ... For men such as Disley, the price of the future was the loss of their whole way of life. [emphasis added]

The health regulations didn't save many lives because London's medical establishment is pretty good at tracking diseases.  If the meat market had been a significant disease source, they'd have fixed it.  We also know that getting rid of men like Disley didn't save enough money to pay for the changes or they'd have been done earlier.

EU regulators, like regulators everywhere, aren't responsible for efficiency or the harm they do - nobody criticized Joan Claybrook when her air bags killed people; nobody criticizes the FDA when they delay a medicine and sick people die.

I personally knew a man who lost his livelihood to government.  Few students owned nasty, polluting automobiles when I was in college; most of us rode bicycles to minimize carbon footprint.  Jasper's Tire Repair was a mile up the road.

Jasper couldn't read or make change, but he was a whiz at fixing bikes.  He'd dive into the most amazing junk pile I'd ever seen, come up with the right part, and I'd be on my way.  He trusted us to put the right amount of money in his coffee can.

The people who live in the state today won't believe it, but there was no sales tax there when I was in college.  Although the bureaucracy couldn't support itself in the style to which it wanted to become accustomed, the citizens did just fine.

When the legislators started talking up a sales tax, we worried about Jasper - even if he actually could make change, there was no way he could deal with .5% (ah, lost youth) tax on parts and no tax on labor.  After the tax passed, Jasper was gone and those who could switched from carbon-free bicycles to carbon-belching automobiles.

And let's not talk about the regulations which required water "saving" toilets which were so ineffective you had to flush them several times to get the job done.  Let's not talk about the upcoming regulation that we stop using incandescent lights and switch to more efficient, but far more costly bulbs which contain mercury.  Let's not even think about their banning mercury thermometers because they occasionally broke and spilled mercury.  Coal contains traces of mercury; coal-burning electric plants put tons of mercury in the air every year and we have to go to Canada to get cheap thermometers that work.

It Isn't Just Bureaucracy

Bureaucrats aren't the only ones who like regulations.  No matter what it costs you and me, every regulation benefits someone.  In "Of Horse's teeth and liberty," the Economist says:

But rules relating to health, safety, the environment and national security have multiplied. Some of these are necessary, but many are not. For example, by one estimate, American health-care regulations cost $169 billion a year more than they yield in benefits, and lead to 7m Americans not being able to afford health insurance. By another estimate, measures to keep terrorists off aeroplanes cost lives by prompting people to drive instead of fly, which is nine times more dangerous.

And even the worst regulation usually heaps benefits on a small group, while its costs are widely spread. The beneficiaries thus lobby hard to keep each rule, while its victims do nothing. The late Mancur Olson, an economist, predicted that interest groups will grow in number until they cause their host society to slip into economic decline.

The "horses teeth" of the article's title concerns a Texan who files horse's teeth for a living.  The veterinarians want the rules changed so that only veterinarians can file teeth; their pious claims of wanting to "protect the public" seem silly when applied to a man who's been doing it for 22 years.

The public doesn't need that sort of regulation.  Horse owners can spread the word about who can do the job.  I can tell whether a barber can cut my hair.  I don't need the board of cosmetology running up haircut prices by limiting the number of barber licenses, but the barbers want to raise prices for haircuts just as the veterinarians want to raise their income by requiring a college degree to file a horse's teeth.

Regulations generally cost far more than advocates claim and deliver fewer benefits, but they benefit someone, if only a bureaucrat who wants more rules and a bigger budget.