• Economic Outlook: An Update • Bootleggers & Baptists January 25, 2013 Bruce Yandle email@example.com
This is a year of the Snake, and allthings will be possible. Savingmoney and being thrifty should beyour top priorities. Delusion anddeception are common in the yearof the Snake. Stay alert! To gainthe greatest benefits from this year,you must control spending and useyour talents wisely. If you areplanning to get married or to begina business partnership, be sure tothoroughly investigate the otherpersons finances and backgroundbefore you legalize the alliance.
0 50 100 150 200 250 300 January 2002 June 2002November 2002 April 2003September 2003 February 2004 July 2004December 2004 May 2005 October 2005 March 2006 August 2006 January 2007 June 2007November 2007 April 2008September 2008 February 2009 July 2009December 2009 May 2010 October 2010 March 2011 Case-Shiller Price Index, 1/2002-9/2012 August 2011 January 2012 June 2012 D.C. Dallas Miami SeaIle Boston Detroit Denver Atlanta Chicago Phoenix Portland CharloIe New York Las Vegas Cleveland Los Angeles San Francisco
Excess Reserves in Depository Institutions 1/1950 – 11/2012
Got the Regulatory Blues?? Shall. Must. May not. Prohibited. Required.
Industry Regulation Index1.45 1.41.35 1.31.25 1.21.15 1.11.05 10.95 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Oil & Gas Rail Paper Chemical Industry Mean
Cost???$ 1.8 trillion annually. Wayne Crews, Tip of the Iceberg, CEI,September, 2012. ($5,678 per capita. Federal taxes are $4,160per capita.)$ 1.7 trillion annually. Nicole Crain and Mark Crain, TheImpact of Regulatory Costs on Small Firms, Small BusinessAdministration, September 2010. ($5,362 per capita)$ 576 billion across 10 year period for six major categories.Sam Batkins and Ike Brannon. Examining the U.S.Regulatory Budget. Regulation, Winter 2012-2013, 5-6.($1,826 per capita)$ 59 billion annually. Susan Dudley and Melinda Warren.Growth in Regulators’ Budget Slowed by Fiscal Stalemate.July 2012. ($186 per capita)
Something even morecostly happens. Whenregulation is endogenous,incentives change for all privateagents. Instead of spending timeat the margin searching forsuperior products and services tosend to the market, entrepreneursfocus on higher payoff endeavors:Working the halls of congress.
Moral Hazard enters the picture.Command and control reduces progressbased on income growth and innovation.
Enterprise Exits, Fewer than 20 & More than 500 Employees,<20 1989 - 2010 Title700000600000500000400000300000200000100000 0 <20 Employees
Enterprise Exits, Fewer than 20 & More than 500 Employees, <20 1989 - 2010 Title >500 700000 600 600000 500 500000 400 400000 300 300000 200 200000 100 100000 0 - <20 Employees >500 EmployeesSource: Office of Advocacy, U.S. Small Business Administration, from data provided by the U.S. Bureau of the Census, Statistics of U.S. Business.
U.S. Report Card Decade Real GDP Real Per Economic Growth, Capita GDP Freedom of the Annualized Growth World. U.S. Rank Last year in Annualized decade 1951-1960 3.05% 1.25% 1961-1970 4.40 3.14 1971-1980 3.16 2.11 5 1981-1990 3.32 2.36 3 1991-2000 3.81 2.58 3 2001-2010 1.60 0.66 10 (2009) 2001-2007 2.56 1.59 5 Average, 3.10% 1.89% 1951-2010Lawrence H. Officer and Samuel H. Williamson"Annualized Growth Rate and Graphs of Various Historical Economic Series," MeasuringWorth, 2011.URL: www.measuringworth.com/growth/ Accessed 03/22/12.
Federal Register Pages per $Billion Real GDP 1940-20111816141210 8 6 4 2 0
Federal Register Pages per $Billion Real GDP 1940-20111816141210 8 6 4 2 0
Theories of Regulation Help to Explain Political ActionPUBLIC INTEREST. Politicians seek to serve the public interest. They want to makeeveryone, taken together, better off. They seek to create new wealth, not to redistributeexisting wealth. Of course, politicians are only human, but they do try to serve the broadpublic interest. (Marver Bernstein. Regulating Business by Independent Commission.1955)CAPTURE. Politicians try to serve the public interest, but some parts of the public aremore interesting than others. Narrow interest groups capture the politician’s ear, andeven go so far as to write proposed statutes and regulations. Unwittingly, perhaps, thepublicly interested politician becomes captured by a special interest. But which one?(Gabriel Kolko. 1963. The Triumph of Conservatism.)SPECIAL INTEREST. Politicians recognize their value in brokering deals. They knowthere are many special interest groups who wish to obtain favors, even at the expense ofthe broad public interest. The successful politician will balance public and privateinterests, while selling his or her services to the highest bidder. Now we know which one.(George Stigler. 1971. The Economic Theory of Regulation.)MONEY FOR NOTHING. The market for political favors is not necessarily dominated byfavor seekers. Politicians are a major force in instigating activities that will inducecontribution. They “bait the political hook” with threats of action and await requests to“do nothing.” Instead of seeing new pages in the Federal Register or new statutes, wesee nothing. (Fred McChesney. 1998. Money for Nothing.)
Bootlegger/Baptists connect the PublicInterest theory to the Interest Grouptheory, but in a special way. Bootleggersare eager to obtain politically deliveredrestrictions and transfers thatredistribute wealth. Baptists seek similargoals, but for moral reasons. With thesupport of both groups, the politician candeliver producer and consumer rents in asingle action…, and take pleasure intrumpeting his action. He is otherwisehandicapped.
Bruce Bueno de Mesquita and Alastair Smith The Dictator’s Handbook, 2011 PoliXcians seek to gain and hold power through redistribuXon. RegulaXon is among items that can redistribute wealth. Theirs is a theory of winning coaliXons. Each party is necessary, but not suﬃcient. It takes both to provide a criXcal element in the selectorate that keeps the poliXcal deals in place.
Politician/ BrokersInterestGroups Bootleggers & BapXsts is a transmission theory Broker first has a knowledge problem. Then, a justification problem
Raising Rivals’ Cost through the AgesMagna Charta, 1215: One standard width for all cloth sold in the kingdom.English Factory Acts, 1833: Minimum age for factory workers, minimum size for factory rooms.Fair Labor Standards Act, 1938: Minimum wage and maximum hours worked for covered workers.U.S. Fuel Economy Standards, 1977: Fleet standards to be met for domestically produced vehicles.
Owls, of all Things, help WeyerhaeuserCash in on TimberThe Wall Street Journal, June 24, 1992, 1-A.Weyerhaeuser says it has restricted logging on 320,000 acres to comply with federal and state rules protecting the birds. On the other hand, logging restrictions to protect the owl have put more than five million acres of federal timberland in the Pacific Northwest out of loggers’ reach—and driven lumber prices through the roof.Owl-driven profits enabled the company to earn $86.6 million in the first quarter, up 81% from a year earlier.
Cartelizing IndustriesClean Air Act 1970,amended. Differential effects. Stricter new source standards block entry and enable existing firms to earn rents. Same with Federal Water Pollution Control Act. Industry executives, environmentalists, Ralph Nader, and Richard Nixon supported the law.CPSC Lawnmower standard, 1982. Technology standard that led to demise of small mower producers.Tobacco Settlement, 1998. Attorneys general negotiated elimination of advertising practices, payment of $246 billion, the largest settlement in history, to states for healthcare and tobacco cessation programs, and encouraged producers to collude and raise price. Industry is managed by settlement.Obamacare, 2011. Eliminated state control of insurance marketers. Increased potential insurance market by an order of magnitude. Cartelized industry.
Bootleggers Subsidizing BaptistsTheodore Vail, president of American Telephone & Telegraph Company, develops natural monopoly concept, and mounts successful PR campaign, leading to formaXon of naXonal monopoly and ICC regulaXon in 1910. Tobacco industry forms NaXonal AssociaXon of Fire Marshalls in the 1980s to publicize and lobby successfully for ﬂame retardant treatment of all upholstered furniture, and stymie call for safe-‐burn cigareIes and extended liability. Teamsters fund Sierra Club in 2009 to ﬁght NAFTA’s relaxaXon of trucking rules. Chesapeake Gas and American Gas AssociaXon provide $26 million subsidy to Sierra Club beginning in 2007 in an EPA struggle to eliminate coal-‐ﬁred uXliXes. United Arab Emirates funds 2012 Promised Land, an anX-‐fracking movie developed to build support for regulaXon limiXng use of fracking to obtain natural gas and oil from deep shale deposits.
We should call it national capitalism.N.S.B. Gras, Capitalism—Concepts & History, 1939.No, it should be called politicalcapitalism.Gabriel Kolko, The Triumph of Conservatism, 1963.We have crony capitalism.David Stockman, Moyers & Company, March7, 2012.
Let’s just call itBootleggers &Baptistscapitalism.