Arnold Kling  

Survey of Regulation

Information and Incentives... No Entitlements Crisis?...

Robert W. Crandall writes,

the deregulatory movement has led to a modest amount of progress in reining in some of these programs in the United States. Unfortunately, much remains to be done in freeing water, spectrum, and land from inefficient government controls.

An excerpt does not do justice to this fascinating survey paper. I was pointed to it by Tyler Cowen in his list of hot recent papers in industrial organization.

For Discussion. Which industries offer the largest potential for welfare gains from deregulation?

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COMMENTS (5 to date)
Bob Knaus writes:

I concur with Crandall that healthcare is (while the most difficult to quantify) undoubtedly the best opportunity for improving "welfare" in both the economic and social senses.

Aside from that, my money would be on agriculture. Despite the "Freedom to Farm Act" of 1996 (courtesy Bureau of Orwellian Legislative Titling) we are still pouring billions down the rathole of farm aid. Additionally, import quotas on some products such as sugar remain in place.

Replacement of the acreage set-aside program in grain crops (which typically had about 20 million participating acres) with direct price supports has resulted in an increase of about 5 million cultivated grain acres since 1996. Additionally, about 2.5 million acres are cultivated for sugar cane and sugar beets, which would not exist as a significant crop in the US without import quotas. That's an area about 3 times the size of Yellowstone National Park that, so far as I can tell, is needlessly cultivated.

These policies (in addition to costing US citizens billions annually) increase soil erosion, degrade water quality, and deprive us of carbon sinks. Oh, and they make farmers in third-world countries very angry.

Interesting side note - why didn't the end of the acreage set-aside result in the full increase of 20 million acres that one might expect, rather than just 5? Well, my relatives in Missouri always had some hardscrabble land on top of the flinty hills that, if planted in corn, was likely to be worth harvesting only one year in three. That's the land they'd put into the government set-aside program, not their prime bottom land. My guess is that a whole bunch of the land we'd been paying farmers not to till for decades was just as unproductive.

Capt. Bob Knaus

David Thomson writes:

The voters are a bunch of hypocrites. There is about as much chance of the politicians being brave enough to significantly cut farm supports as there is for me to defeat Shaq O’Neal on a basketball court. Hell will freeze over first. The only hope we have is for the sons and daughters of today’s farmers opting for another life style. It is my understanding that the farm sector now employs less than 3% of the American work force. And, thankfully, this figure supposedly continues to drop.

Ronnie Horesh writes:

Yes, the number of farmers will continue to fall, but I am not optimistic for two main reasons. (Source for both: OECD.) 1: most benefits from the farm support policies go to the suppliers of farm inputs or the processors of farm output, both because they charge more, and because farm support stimulates more production. 2: Of the support to farmers, most of it already goes overwhelmingly to just a few big farmers. In the US, for instance,about 88 per cent of support goes to the largest (in terms of gross sales) 25 per cent of farmers.

So even though the number of farmers will continue to fall, the large agribusiness corporates and the large farmers will, I think, continue to veto any significant changes in agricultural policy.

Dewey Munson writes:

Read thru Crandell.

Much regulation arose when Railroads etc ran into trouble under capitalistic system.

Capitalistic failures seem to be the quickest to run the the "Govt" for help.

Who pays for Airports, Railroads, Highways, Research etc.

How can the market realistically determine where to put an airport or run a railroad or install a pipeline or locate a highway or Install an generating plant?


Dig a well? Form an electric company? Gimme a break! Even my current phone bill has me locked in financially for a year and best competitor has an equally long legal contract.

The effectiveness of the capitalistic system doesn't automatically make it right for everything.

Has anyone ever seen a list of goals for Capitalism? Wouldn't that be the ultimate business plan?

Ken writes:

"Which industries offer the largest potential for welfare gains from deregulation?"

I'll go with healthcare too. We could end up gaining thousands of years thereby.

A close second is aviation. Replacing FAA licensing and certification requirements with mandatory liability insurance might end up allowing us to finally stop driving glorified Model-T's and fill the sky with traffic.

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