Copyright by John T. Reed

During the recent stock market crash, Obama said it happened because Republicans are in favor of deregulation and deregulation is wrong. Democrats, he went on, are the regulation party which is the correct position on the matter.

Both parties favor some regulation

In fact, both parties are in favor of obviously sensible regulations like traffic lights and traffic signs. Some drunken teenagers thought it would be funny to remove a rural intersection stop sign. They did. A car passing through it did not stop and people were killed by the resulting collision. The teenagers went to jail.

On the other hand, European cities have recently discovered that slow-moving traffic on congested areas flow better when there are no traffic signals or signs.

The correct amount of regulation is what the 2008 book The Gridlock Economy calls Goldilocks regulation: not too much and not too little. At a high-speed, rural intersection, no stop sign is too little regulation. In a congested European city whose streets were originally designed as cow paths, red lights and stop signs are too much regulation.

Where the parties differ on regulation is on whom and what to regulate. The Democrats love Robin Hood regulation of Republican-voting businessmen, e.g., forcing car companies to make high-mileage cars. Note that those same Democrats have absolutely no interest in forcing Democrat voters who drive SUVs to buy those high-mileage cars that Detroit has to make.

Republicans love self-righteous regulation of Democrat voters who, for example, want to have abortions.

Regulation is not an either-or issue. It is simply another political weapon used by both parties.

The correct regulation level from the perspective of what’s best for the country depends on the particular situation. There are some general principles.

Whose money is being spent?

The government should not be able to regulate how you spend your money. But they must regulate how you spend the taxpayers’ money if you are in a government job or other position that enables you to spend or risk taxpayers’ money. Much of the regulation Democrats want, like rent control, dictates to private citizens how they must spend their own money. Rent control forces landlords to make ever-increasing charitable contributions to their tenants to the extent that the controlled rent is below the current market rent for the apartment in question.

An example of bad deregulation is Ronald Reagan’s Depository Institutions Act of 1982. That deregulated the Savings and Loan industry to a large extent, but it left FSLIC stickers on the windows of the S&Ls. That meant the deregulated savings & loans, which were suddenly bought my a lot of shady characters, started spending and taking huge risks with deposits that were guaranteed by the Federal Savings and Loan Insurance Corporation. The resulting Savings and Loan Debacle cost the taxpayers $160 billion.

Obviously, you can deregulate the savings and loan industry, but you must simultaneously remove the federal deposit insurance. Then the S&L CEOs are risking their own money or that of their shareholders. In reality, they would probably have become far more conservative if they had no deposit insurance to attract deposits.

Or you can leave the FSLIC stickers on the windows, but you must also leave in place regulations and oversight that prevent the S&L executives from wasting or excessively risking the taxpayers’ money.

No one should oppose spending taxpayers’ money prudently and refraining from risking taxpayers’ money.

The current subprime crisis was caused partly by Republicans overdoing non-regulation of their business buddies and partly by Democrats overdoing non-regulation of lower middle class and poor voters who wanted to buy homes and get in on the real estate boom. In that crisis, both parties under-regulated their political base and thereby jointly caused this humongous financial disaster.

But government reactions like temporarily banning short sales are obvious over-regulation. Short sellers are spending and risking their own money. It is none of the government’s business. Furthermore, short sellers are engaging in economic free speech which is useful to the financial markets for hedging and for communicating legitimate analysis about the securities in question.

Hybrids

One of the problems is the very existence of hybrid entities like FNMA and FHLMC. The have the word “federal” in their names but they are private corporations.

Say what?

You always used to see phrases like, “FNMA and FHLMC are not federally guaranteed, but the market believes the federal government would have a moral obligation to make sure they do not default.”

What would you do if someone you had no control over were going around saying he had no official connection to you but you had a moral obligation to guarantee his debts? You would damned well make a prompt public announcement that he was full of crap and that you absolutely would not guarantee his debts. The federal government could have done that, and could have forced FNMA and FHLMC to remove the word “federal” from their names, but they did neither. And when the two companies failed, they were nationalized a great expense to the taxpayers.

Banks with federal deposit insurance are also hybrids. They either should not exist or they must be extremely tightly regulated because taxpayers’ money is at risk. That is not a Democrat platform tenet. It is common sense.

Flood insurance

Federal flood insurance is another hybrid. It uses taxpayers’ money, but it insures private homes. Whose homes? Republicans generally (waterfront homes are more expensive) but sometimes Democrats (low ground near rivers is often less expensive).

If there were no federal flood insurance, which is the way it ought to be, few homes would be built in flood plains. And they would be cheaper to buy because of the periodic flood damage. Then the risk would be borne by the homeowners as it should be. All federal flood insurance does is make those of us who do not live on flood plains subsidize the suicidal behavior of those who do. It is a classic example of an activity that ought to be unregulated, other than to require disclosure. But it must also be unsubsidized by the federal government. (There is no private flood insurance because floods are not an insurable risk.)

I am a Libertarian. We generally oppose regulation of how people spend their own money or time. But neither do we clamor for federal aid or insurance.

Telling auto makers what kinds of cars to build

Washington has been telling auto makers what kinds of cars to build for years in terms of pollution and fleet gas mileage. I am OK with reasonable pollution mandates because they affect the air we breathe. The problem with environmental regulations comes when their advocates go to extremes. Extreme environmental regulations are not about the environment. Rather, they are about the reds wearing a green disguise as they try to take control of the means of production.

The Endangered Species Act, for example, imposes millions in costs for the sake of this salamander or that owl. It also shows profound ignorance of the environment. Species have been “going out of business” since the beginning of time including before humans existed.

Mandates with regard to gas mileage, on the other hand, are the government sticking its nose in other people’s business. The car makers will make whatever kind of cars will sell including high-mileage ones. But the American people have shown repeatedly over three decades that the only thing that will cause many of them to buy high-mileage cars is persistent high gasoline prices. Gasoline prices have never been persistently high and probably never will be absent some government interference that makes them persistently high. Making car makers produce cars that the public does not want to buy will hurt everyone.

Talk now is that the government has increased right to tell the manufacturers what to buy because of bailouts. In that case, the car makers must refuse the bailouts and go bankrupt. If they accept the bailout and those conditions, they are just going to have a worse bankruptcy a little bit later.

In the real world, there are three things going on in regulation:

• sincere although often incompetent regulators trying to do the right thing for America
• partisans trying to use regulation to advance the agenda of their side
• economic special interests trying to use regulation to advance their economic interests

There is no body of knowledge on the proper goal of regulation or how to accomplish it nor is there any infrastructure or even interest in tracking the effects of regulation to see if they are actually achieving legitimate purposes. So even sincere attempts at regulation are generally incompetent and do harm to America. Also, all government activities involve massive waste, fraud, and abuse almost by definition.

When partisans get control of regulation setting or enforcing, they tend to use the regulations to help their party get reelected and to prevent the opposing parties from winning. Environmental regulations are almost always used by Democrats to hurt Republicans like developers or manufacturing or energy corporations. Financial regulations are mostly used by Republicans to help those who vote for them.

Because Democrats are closet socialists, regulation is their thing in general. They see government as the best way to do things, not because it works, but because it producers the “right” winners.

Building code are supposed to make buildings safer. To a large extent, they do. Earthquakes that kill hundreds of thousands in other countries kill very few people here, in spite of equal strength, because of the existence and enforcement of our building codes.

But labor unions also use building codes to immorally stop labor-saving construction approaches from being used. And manufacturers use building codes immorally to encourage the use of their products and to hamper the use of their competitors. There need to be stronger methods of preventing immoral use of the building codes to serve special interests. Also, building code writers and enforcers must be forced to be competent and stay up to date on the latest technologies and methods.

Cell phones

The U.S. is generally a technological leader, but not in cell phone technology. Why? Because of overregulation. In Europe and Asia, cell phone companies were less regulated so they made cell phones and infrastructure that enables them to do far more things with their phones. Generally, other countries are more prone to overregulate, but we should keep an eye on them looking for the better ways to regulate that they occasionally come up with.

Overall regulatory guidelines

There ought be to overall guidelines for the writing and the enforcement of regulations. Some would say there is. It‘s called the Constitution. Indeed, that document does say a few things about regulation, but sadly, politicians have learned that they can ignore the Constitution and no one does anything about it. As a result they have become increasingly brazen about ignoring the Constitution. Fox News’ former judge Andrew Napolitano wrote a book about it called A Nation of Sheep.

Here are my suggested “commandments” for regulations:

I. The government may not tell any person or privately-owned entity how they may spend their own money or how much they may charge for any product or service.
II. All regulations must contain a sunset date at which time the regulation will cease to exist unless renewed by the legislature.
III. The government may reasonably regulate the release of liquids, gases, or particulate matter into the air or public waterways based on established, proven science.
IV. The government may not regulate the private behavior of consenting adults.
V. All regulations shall state their specific goals when enacted.
VI. A cost-benefit analysis shall be done prospectively with regard to all proposed reductions and redone annually after the regulation has been put in place to see whether the specific goals are being advanced by the regulation and are worth its costs. If not, the regulation shall be changed so as to make it more effective or eliminated.
VII. Regulations governing common use of property; e.g., real estate, copyrights, inventions; shall be designed and continuously modified to as to encourage optimal use and neither under- nor over-use by the public.
VIII. The government shall promptly make regulations that prevent the spread of contagious diseases as the need arises.
IX. The government shall not make any regulations regarding, or impose any tariffs on, imports other than regulations which apply equally to products made in the United States.
X. The government shall not restrict or penalize the purchase of any service from non-U.S. residents that is not illegal when provided by U.S. residents.

I am open to suggestions for additional regulation guidelines from readers.

To be continued