Friday, December 15, 2023

Time for a new (?) theory of regulation

What's the basic story of economic regulation? 

Econ 101 courses repeat the  benevolent dictator theory of regulation: There is a "market failure," natural monopoly, externality, or asymmetric information. Benevolent regulators craft optimal restrictions to restore market order. In political life "consumer protection" is often cited, though it doesn't fit that economic structure. 

Then "Chicago school" scholars such as George Stigler looked at how regulations actually operated.  They found "regulatory capture." Businesses get cozy with regulators, and bit by bit regulations end up largely keeping competition down and prices up to benefit existing businesses. 

We are, I think, seeing round three, and an opportunity for a fundamentally new basic view of how regulation operates today. 

The latest news item to prod this thought is FCC Commissioner Brendan Carr's scathing dissent on the FCC's decision to cancel $885 million contract to Starlink. Via twitter/X

Quoting from the dissent itself (my emphasis): 

Last year, after Elon Musk acquired Twitter and used it to voice his own political and ideological views without a filter, President Biden gave federal agencies a greenlight to go after him. During a press conference at the White House, President Biden stood at a podium adorned with the official seal of the President of the United States, and expressed his view that Elon Musk “is worth being looked at.”1 When pressed by a reporter to explain how the government would look into Elon Musk, President Biden remarked: “There’s a lot of ways.”2 There certainly are. The Department of Justice, the Federal Aviation Administration, the Federal Trade Commission, the National Labor Relations Board, the U.S. Attorney for the Southern District of New York, and the U.S. Fish and Wildlife Service have all initiated investigations into Elon Musk or his businesses.

Today, the Federal Communications Commission adds itself to the growing list of administrative agencies that are taking action against Elon Musk’s businesses. I am not the first to notice a pattern here. Two months ago, The Wall Street Journal editorial board wrote that “the volume of government investigations into his businesses makes us wonder if the Biden Administration is targeting him for regulatory harassment.”3 After all, the editorial board added, Elon Musk has become “Progressive Enemy No. 1.” Today’s decision certainly fits the Biden Administration’s pattern of regulatory harassment. Indeed, the Commission’s decision today to revoke a 2020 award of $885 million to Elon Musk’s Starlink—an award that Starlink secured after agreeing to provide high-speed Internet service to over 640,000 rural homes and businesses across 35 states—is a decision that cannot be explained by any objective application of law, facts, or policy.

When the Biden administration launches an "all of government" initiative, they mean all of government. 

A tweeter queries


Show me the man, and I'll find the crime. Three felonies a day. 

In the same vein, I found most interesting in the twitter files and scathing Missouri V. Biden decision the question, just how did the government force tech companies to censor the government's political opponents? "Nice business you have there. It would be a shame if the alphabet soup agencies had to look into it." 

This doesn't fit either the econ 101, benevolent nanny, or regulatory capture view. Fundamentally, regulators have captured the industry, not the other way around. They hold arbitrary discretionary power to impose huge costs or just shut down companies. They use this power to elicit political support from the companies. There is a bit of old Chicago school capture in the deal. Companies get protected markets. But the regulators now don't just want a few three martini lunches and a cozy revolving door to "consultant" jobs. They demand, political support. The regulators are more political ideologues than gently corruptible insiders.  

Sometimes regulators seem to attack businesses just for fun, like suing a moving company for age discrimination. But maybe here too they are showing everyone what they can do, or scoring some ideological points so people get the message.  

The increasing arbitrariness of regulation is part of the process. I find myself nostalgic for the good old days of the Administrative Procedures Act, public comment, cost benefit analysis, and formal rule making. Now regulators just write letters or take legal action, which even if unsuccessful can bankrupt a company.  Using administrative courts, the regulators are prosecutor, judge, jury, and executioner all rolled in to one. 

Unrelated. $885 million / 640,000 = $1,3825. The federal government apparently thinks it's worthwhile for taxpayers to pay $1,382 to give rural households access to satellite internet. If anyone asked, "would you rather $x in cash or a starlink account?" (which, I think, they also have to pay for) I wonder if x would be much more than $50. 


22 comments:

  1. Biden's only mistake was responding to the question. I really doubt whether he has directed any parts of government to explicitly go after Musk. The US Fish and Wildlife tweet has a simple and reasonable explanation. SpaceX's first launch of its new Starship rocket created a "rock tornado" that may have damaged the wetlands in Boca Chica, TX. The Fish and Wildlife service were called in to assess the damage and the remedy and passed it within a few months.

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    1. Your naivete is showing, not thoughtful analysis. You "doubt" whether Senile Joe would sic corrupt government agencies to go after any private person or enterprise? Based on what, given that we have seen the exact opposite many times: regulators going after companies for "incorrect" downstream carbon by consumers, attacking oil pipelines by cancelling by fiat hundreds of legally negotiated contracts and agreements, attacking individual doctors and medical professionals who challenged the corrupt dictats about Covid, attacking the First Amendment by arm-twisting Twitter and others to censor (losing that censorship when Musk bought Twitter), attacking individuals for disagreeing with abusive school boards, attacking pro-life demonstrators, ad infinitum.
      For you to "doubt" that Biden would do any such thing means that you have chosen to be blind to so many previous examples of the same.

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    2. So you don't like Biden. Got it. Why do people like you bother with comments like this one? You know that nobody is really going to dive into each of the issues you list, only to find out that they're all BS. Your reference to the nothing-burger Twitter Files BS tells me everything I need to know about you. Stay anonymous!

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    3. Totally wrong, again. Every point I cited is 100% proven and verified. Once again, your denial of facts is obvious.

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  2. Typo: $1,382 per rural household.

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    1. Probably to get something else through the Senate. Needed a vote from a rural senator. The senator even prefers that to $2,000 per household in cash because that would be welfare

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    2. wtp =/ benefit.

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  3. "Unrelated. $885 million / 640,000 = $1,382"

    Wouldn't it be $885M / 300M = ~$3 since all taxpayers share the bill?

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    1. LOL - this thinking is is EXACTLY the problem!

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  4. While certainly plausible that regulatory agencies are used as political tools, we do need evaluate the each case based on merits beyond the torrent of sensationalist news. The FCC statement (kinda interesting read) reveals:

    1. Most recent data on Starlink performance showed drift *away*, rather than approaching required standards;
    2. Meeting required delivery is predicated on Starship from SpaceX, which has not successfully launched to date, and may even jeopardize its other gov't contracts.

    Reports also revealed that basic design oversights in SpaceX's launchpads led to considerable environmental contamination in the area (i.e. Econ 101 case). This makes the involvement of environmental groups, such as US Fish and Wildfire less outlandish than one might think.

    https://www.documentcloud.org/documents/24216853-fcc-order-on-review-re-spacex-and-rural-digital-opportunity-fund

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  5. All within the state, nothing outside the state, nothing against the state.

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  6. wouldn't this also be a form of "fascism"?

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    1. F.A.Hayek had an interesting discussion of how the Nazis used the dense regulatory system of Weimar German to control the German economy in "The Road to Serfdom" (1944).

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    2. Mussolini's quote, "We were the first to assert that the more complicated the forms assumed by civilization, the more restricted the freedom of the individual must become." It seems our petulant president thinks the same. Why do these clowns fear freedom and innovation so much.

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    3. Read the book "Vampire Economy" concerning business operations in The Third Reich. The Nazis inserted goons into every business of any consequence. You could not hire, fire, buy supplies, set prices, do international export/import or anything else without the goons approving. The author quoted top businessmen in Germany at the time saying that private enterprise under the Nazis was just like the USSR. The Nazis destroyed Germany's economy. It wasn't until Hitler picked Albert Speer to run things that the bottlenecks were removed. You can read Speer's two biographical books for more on that particular subject. Speer was a Nazi for sure but not an idiot.

      The author of "Vampire Economy" was a a German, an anti Nazi and a member of the Communist Party so he knew what he was talking about.

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    4. The Vampire Economy is a must-read indeed and available for free at the Mises Institute: https://mises.org/library/vampire-economy

      Funny that G√ľnter Reimann was a communist: I would not have guessed it reading the book showing all the flaws of socialist economic management under the Nazis!

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  7. I think the toll booth theory covers the situation, as in McChesney 1987

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  8. You have a government that on many occasions seems to over regulate and arbitrarily regulate.

    You have a business owner who in many occasions knowingly breaks and ignores regulations (many of which seem legitimate) for personal gain, utilizing unlimited money, lawyers and his bully pulpit to steamroll.

    I think Elon’s a poorly chosen example to make a legitimate point. Or, if you want to use Elon as evidence the government’s regulation is arbitrary and punitive, this is not nearly enough research and evidence “meh charred blue crabs”) to make that point well.

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  9. Fred McChesney's rent extraction theory describes exactly this phenomenon.

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  10. I believe Dr. Cochrane's point is a take on the Kantian moral imperative of "what if everybody did it?", i.e.,what if/why isn't every company subjected to this level of scrutiny? Is the issue (1) all of Musk's companies are really so bad via a vis other companies that they deserve all this scrutiny, (2) the agencies are understaffed and going after deep-pocketed low hanging fruit or (3) the agencies are doing what appears to be politically persecuting a high profile dissenting voice (thus making an example of him- "if I can go after this guy, I sure the heck can come for your business")? This one walks like a duck and quacks, so it's pretty clear #3 is the most likely answer.

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  11. Welcome to reality John! This is neither a new problem or one confined to one political party. Remember Nixon's enemies list? You know, the one where he ordered the IRS to harass his political enemies? Using one's political power to sick regulators on your opponents is a practice as old as time and, in the grand scheme of things, is more of a sideshow when it comes to the problems with regulation. You are 100% correct that the modern regulatory state/apparatus is a problem but the problem is much, much, bigger and more pernicious than one or another pol directing his buddies to harass his enemies. If that were the only/real problem we would be in a pretty good place.

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  12. Hayek's view was that only the worst would rise to positions of authority because good people would understand that the unintended consequences of trying to manipulate something as complex as a modern economy was beyond anyone's ability. While I think there is truth in that, the thing that seem to have really changed is that all of the agencies seem to have chosen the same side. They were all in against Trump and on in for Biden. So the question is why did that happen? I think the answer has a lot to do with public sector unions. Politicians on the left -- think of Chicago's new mayor -- actively support the unions and they in turn kick back large chunks of their rents to the politicians who support them. The long march through the institutions seems to started with that. FDR was right. Public sector unions should not exist because they conspire with the Democrats to increase the rents they extract.

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