More on regulation

A few bits on regulation, in one place.

In May of 2017, I wrote:

it seems clear that the net benefits of regulation vary considerably depending on which ones you’re talking about. The Clean Air Act seems to have had large positive effects. On the other hand, overzealous land use regulations that prohibit building have had large negative effects.

In December I wrote about an analysis of regulation and human welfare, by Ed Dolan of Niskanen. Ed shows that the negative correlation between regulation and human welfare evaporates once you start controlling for the obvious things. He wrote a nice piece for us at HBR that I edited on this topic. In it, he summarizes his previous analysis:

I found that quality of government is a statistically significant predictor of GDP and of broader prosperity indexes. At the same time, when I controlled for quality of government, regulatory freedom lost its predictive power. I interpret this to mean that quality of government is the real cause of economic and social prosperity. Regulatory freedom, at least as it is measured by the Heritage and Cato indexes, is not an end in itself. Rather, it is an outcome of good government in the more general sense.

And he offers three sensible rules for thinking about regulation:

  • Retain regulations that support the basic rules of a market economy.

  • Replace regulations that have legitimate aims but also have harmful unintended consequences.

  • Repeal regulations that are motivated primarily by the manipulation of public policy for private gain.

Finally, this EconoFact explainer is a nice, concise case for why regulations can bring significant net benefits to society. Basically, externalities, limited information or ignorance about harms, and unequal power dynamics.