What are the costs and benefits of economic deregulation?


Of course it depends on what types of regulation we are talking about, and in which industries — and, more than that, which specific regulations are being discussed. Broad generalizations are troublesome here because they often seem ideologically driven, and are pretty easy to nitpick into dust. At the same time, to do this topic justice we would probably get lost in the minutiae of specific examples in specific industries at specific junctures in history, and miss the forest for the trees…
So after several years researching this topic I’ll shoot from the hip on this and offer what I suspect to be a few “somewhat sound” overarching principles:

1. Deregulation for its own sake is almost always a bad idea — unless something else (incentives, new technology, new business models, new civic institutions, etc.) is deliberately and thoughtfully considered or generated in place of the regulations being retired. In other words, if there is a provably better way to achieve a given outcome, then by all means let's abandon regulations perceived to be holding us back. But “the market” does not — and never has — offered those solutions on its own, and too often the result of deregulation is a Wild West with excessively unpredictable results. The religious conviction that markets can solve complex problems without any oversight or constraints is just that: a religious conviction, with very little basis in observable fact.

2. In reality, there have to be carefully engineered metrics that evaluate outcomes in order to understand what is required to anticipate and manage externalities and social risk. That is where complexity is killing us right now — our systems, technology, and relationships are evolving quickly and incredibly difficult to grok, and it’s even more difficult to craft adequate policies to address them (and the larger the scope of such policy, the more difficult it becomes). And because all of society is morphing so rapidly, it can be counterproductive to apply rules and metrics we used in our past analysis to what we can only vaguely predict for the near future. It’s like trying to catch a train while riding on a bicycle, only to have that train turn into a rocket that launches itself into space. So, without actually deliberately slowing all this progress, growth, and innovation, most regulation is a shot in the dark — a necessary shot (if we lack other structures to achieve similar ends), but less and less likely to have predictive efficacy.

3. That said, costs of deregulation are generally easier to predict than benefits. Why? Because very often there were pragmatic “learned from experience” reasons regulations were put in place initially. Not always, but nearly so, deregulation is a knee-jerk right-libertarian/neoliberal response to bureaucratic interference with profit, and rarely if ever attempts to fully appreciate or understand benefits beyond profit — or costs beyond loss of profit. Have there been some measurable additional benefits for narrowly focused examples of deregulation? Of course. It’s easy to cherry-pick positive examples — but again that’s missing the forest for the trees. On the whole, deregulation without a thoughtful substitute has been disastrous in terms of negative externalities and measurable loss of benefit to society. And that social cost is the more nuanced outcome that pro-deregulation folks don’t want to acknowledge or address.

4. It’s okay to be inefficient. It’s another tangential discussion, but large corporations are not any more efficient than government is — and sometimes they are much worse. Regardless, if inefficiency means, for example, that innovation happens a little more slowly and deliberately, then that’s actually okay if we frame things with concepts like “the precautionary principle.” Again, we have to decide on our metrics — and what outcomes we really value the most.
If I attempt to use some examples to support these broad statements, they can (and will) be easily picked apart. But I would encourage anyone interested in this topic to carefully evaluate the following points to gain insight into what the true costs and benefits of deregulation really are:

1. The deregulation of the airline industry in the U.S. and its impact on rural America in particular.

2. Various deregulations of the banking industry in the U.S. and the measurable consequences of socialized risks for privatized gains.

3. The health impacts on U.S. citizens from the countervailing efforts of coal, tobacco, agriculture, and petroleum industries to rid themselves of regulation and/or achieve regulatory capture of government.

4. Now…who benefited from the deregulation in all of the above instances? It generally wasn’t consumers — or, if so, only a narrow slice of consumers. It also wasn’t workers (or, if so, again only a select few). It wasn’t society as a whole. So….who benefited the most? Well, owner-shareholders of course. And let’s not pretend that “trickle down” supply side fantasies have ever been realized — it has never happened. The benefits remain neatly with those owner-shareholders, their families, and perhaps a few lucky charities, favored financial institutions, and the more loyal and obsequious politicians.

5. Lastly, amplifying the “folllow-the-money” theme, who will benefit most from deregulation of (or lack of regulation for) the Internet? Public lands? Air and water quality? Obamacare? The stock exchange? It’s really not that difficult to understand what (and who) is really motivating most deregulation. It’s just really easy to obscure those causal sparks with distracting rhetoric about “liberty” or “efficiency.”

In any case, these examples would be a good place to start. I can happily offer more upon request.

My 2 cents.

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