•  Economic Outlook: An Update   •  Bootleggers & Baptists         January 25, 2013           Bruce Yandle        yandle@b...
This is a year of the Snake, and allthings will be possible. Savingmoney and being thrifty should beyour top priorities. D...
 	  	  	  	  	  	  	  	  GDP   Growth Forecasts, 2013 - 2014Forecaster                                       2013         ...
What about Retail SalesEmployment?Housing?
$140,000                    $145,000                               $150,000                                          $155,...
0                      500                            1000                                   1500                         ...
0.00                5.00                       10.00                               15.00                                  ...
130000                  132000                           134000                                    136000                 ...
130000                       132000                                134000                                         136000  ...
0.00                   20.00                           40.00                                   60.00                      ...
0                                                                                50                                       ...
Excess Reserves in Depository Institutions           1/1950 – 11/2012
Got the Regulatory Blues??	  	  	  	  	  	  	  	  	  	  	  	  	  	  	  Shall.	  	  Must.	  	  May	  	  not.	  	  Prohibite...
Industry Regulation Index1.45 1.41.35 1.31.25 1.21.15 1.11.05  10.95       1997   1998   1999      2000          2001     ...
Cost???$ 1.8 trillion annually. Wayne Crews, Tip of the Iceberg, CEI,September, 2012. ($5,678 per capita. Federal taxes ar...
Something even morecostly happens. Whenregulation is endogenous,incentives change for all privateagents. Instead of spendi...
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 Title700000600000500...
Enterprise Exits, Fewer than 20 & More than 500 Employees,        <20                                1989 - 2010 Title    ...
0                         100,000                                   200,000                                             30...
U.S. Report Card  Decade                      Real GDP                    Real Per                   Economic             ...
0                                                 10000                                                         20000     ...
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...
Bootlegger/Baptists connect the PublicInterest theory to the Interest Grouptheory, but in a special way. Bootleggersare ea...
Bruce	  Bueno	  de	  Mesquita	  and	  Alastair	  Smith	  The	  Dictator’s	  Handbook,	  2011	                             ...
Politician/                                   BrokersInterestGroups               Bootleggers	  &	  BapXsts	  is	         ...
Raising Rivals’ Cost through the AgesMagna Charta, 1215: One standard width for all cloth sold in the kingdom.English Fact...
Owls, of all Things, help WeyerhaeuserCash in on TimberThe Wall Street Journal, June 24, 1992, 1-A.Weyerhaeuser says it ha...
Cartelizing IndustriesClean Air Act 1970,amended. Differential effects. Stricter new source   standards block entry and en...
Bootleggers Subsidizing BaptistsTheodore	  Vail,	  president	  of	  American	  Telephone	  &	  Telegraph	  Company,	  deve...
We should call it national capitalism.N.S.B. Gras, Capitalism—Concepts & History, 1939.No, it should be called politicalca...
Let’s just call itBootleggers &Baptistscapitalism.
Bruce yandle-chc-january
Bruce yandle-chc-january
Bruce yandle-chc-january
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Bruce yandle-chc-january

  1. 1. •  Economic Outlook: An Update •  Bootleggers & Baptists January 25, 2013 Bruce Yandle yandle@bellsouth.net
  2. 2. 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.    
  3. 3.                  GDP Growth Forecasts, 2013 - 2014Forecaster 2013 2014 DateBloomberg 2.1% 2.0% 10/5/12CBO 0.5 – 1.7 11/9/12Conf. Board 1.3 1.4 12/12/12Fed—Chic 2.3 12/3/12Fed—Phila 2.0 2.7 11/9/12Ga. State 1.5 2.6 11/14/12IMF 2.2 2.1 10/./12Moody’s 2.0 12/10/12NABE 2.4 10/15/12Wells Fargo 1.5 2.4 12/21/12WSJ 2.4 11/5/12World Bank 2.4 6/./11
  4. 4. What about Retail SalesEmployment?Housing?
  5. 5. $140,000 $145,000 $150,000 $155,000 $160,000 $165,000 $170,000 $175,000 $180,000 $185,0002007-01-012007-03-012007-05-012007-07-012007-09-012007-11-012008-01-012008-03-012008-05-012008-07-012008-09-012008-11-012009-01-012009-03-012009-05-012009-07-012009-09-012009-11-012010-01-012010-03-012010-05-012010-07-01 Millions, Seasonally Adjusted2010-09-012010-11-01 U.S. Retail Sales, 1/2007 - 11/20122011-01-012011-03-012011-05-012011-07-012011-09-012011-11-012012-01-012012-03-012012-05-012012-07-012012-09-012012-11-01
  6. 6. 0 500 1000 1500 2000 2500 1600   1990-­‐01-­‐01   1990-­‐09-­‐01   1991-­‐05-­‐01   1992-­‐01-­‐01   1992-­‐09-­‐01   1993-­‐05-­‐01   1994-­‐01-­‐01   1994-­‐09-­‐01   1995-­‐05-­‐01   1996-­‐01-­‐01   1996-­‐09-­‐01   1997-­‐05-­‐01   1998-­‐01-­‐01   1998-­‐09-­‐01   1999-­‐05-­‐01   2000-­‐01-­‐01   2000-­‐09-­‐01   2001-­‐05-­‐01   2002-­‐01-­‐01   2002-­‐09-­‐01   2003-­‐05-­‐01   2004-­‐01-­‐01   2004-­‐09-­‐01   2005-­‐05-­‐01   (thousand, annual rate) 2006-­‐01-­‐01   2006-­‐09-­‐01   2007-­‐05-­‐01   2008-­‐01-­‐01   2008-­‐09-­‐01   U.S. Housing Starts, 1/1990 - 11/2012 2009-­‐05-­‐01   2010-­‐01-­‐01   2010-­‐09-­‐01   2011-­‐05-­‐01   2012-­‐01-­‐01   2012-­‐09-­‐01  2015 2016  
  7. 7. 0.00 5.00 10.00 15.00 20.00 25.001990-01-011990-09-011991-05-011992-01-011992-09-011993-05-011994-01-011994-09-011995-05-011996-01-011996-09-011997-05-011998-01-011998-09-011999-05-012000-01-012000-09-012001-05-012002-01-012002-09-01 (millions, annual rate)2003-05-012004-01-012004-09-012005-05-012006-01-01 U.S. Auto & Light Vehicle Sales, 1990-20122006-09-012007-05-012008-01-012008-09-012009-05-012010-01-012010-09-012011-05-012012-01-01
  8. 8. 130000 132000 134000 136000 138000 140000 142000 144000 146000 1480002002-01-01 Thousands2002-05-012002-09-012003-01-012003-05-012003-09-012004-01-012004-05-012004-09-012005-01-012005-05-012005-09-012006-01-012006-05-012006-09-012007-01-012007-05-012007-09-012008-01-012008-05-012008-09-012009-01-012009-05-012009-09-012010-01-012010-05-012010-09-012011-01-012011-05-01 U.S. Total Employment, 1/2002-11/20122011-09-012012-01-012012-05-012012-09-01
  9. 9. 130000 132000 134000 136000 138000 140000 142000 144000 146000 1480002002-01-01 Thousands2002-05-012002-09-012003-01-012003-05-012003-09-012004-01-012004-05-012004-09-012005-01-012005-05-012005-09-012006-01-012006-05-012006-09-012007-01-012007-05-012007-09-012008-01-012008-05-012008-09-012009-01-012009-05-012009-09-012010-01-012010-05-012010-09-012011-01-012011-05-01 U.S. Total Employment, 1/2002-11/20122011-09-012012-01-012012-05-012012-09-01 2013
  10. 10. 0.00 20.00 40.00 60.00 80.00 100.00 120.00 140.00 160.00 180.00 200.00Mar-­‐2001  Jun-­‐2001  Sep-­‐2001  Dec-­‐2001  Mar-­‐2002  Jun-­‐2002  Sep-­‐2002  Dec-­‐2002  Mar-­‐2003  Jun-­‐2003  Sep-­‐2003  Dec-­‐2003  Mar-­‐2004  Jun-­‐2004  Sep-­‐2004  Dec-­‐2004  Mar-­‐2005  Jun-­‐2005  Sep-­‐2005  Dec-­‐2005  Mar-­‐2006  Jun-­‐2006  Sep-­‐2006  Dec-­‐2006  Mar-­‐2007  Jun-­‐2007  Sep-­‐2007  Dec-­‐2007  Mar-­‐2008   3/2001 - 9/2012Jun-­‐2008  Sep-­‐2008  Dec-­‐2008  Mar-­‐2009  Jun-­‐2009  Sep-­‐2009  Dec-­‐2009   Case-Shiller 20-City Housing Price Index,Mar-­‐2010  Jun-­‐2010  Sep-­‐2010  Dec-­‐2010  Mar-­‐2011  Jun-­‐2011  Sep-­‐2011  Dec-­‐2011  Mar-­‐2012  Jun-­‐2012  Sep-­‐2012  
  11. 11. 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  
  12. 12. Excess Reserves in Depository Institutions 1/1950 – 11/2012
  13. 13. Got the Regulatory Blues??                              Shall.    Must.    May    not.    Prohibited.    Required.  
  14. 14. 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  
  15. 15. 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)
  16. 16. 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.
  17. 17. Moral Hazard enters the picture.Command and control reduces progressbased on income growth and innovation.
  18. 18. Enterprise Exits, Fewer than 20 & More than 500 Employees,<20 1989 - 2010 Title700000600000500000400000300000200000100000 0 <20 Employees
  19. 19. 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.
  20. 20. 0 100,000 200,000 300,000 400,000 500,000 1970 600,000 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990Domestic Owners 1991 1970 - 2011 1992 1993Total 1994 1995 1996 1997 1998 1999 2000 2001 U.S. Patents Issued, Total & Domestic Owners 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
  21. 21. 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.
  22. 22. 0 10000 20000 30000 40000 50000 60000 70000 80000 90000 100000 1940 1942 1944 1946 1948 1950 1952 1954Federal Register, 2011. 1956 1958 1960Source: Crews (2010, 38), Office of 1962 1964 1966 1968 1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 Federal Register Pages: 1940-2011 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010
  23. 23. Federal Register Pages per $Billion Real GDP 1940-20111816141210 8 6 4 2 0
  24. 24. Federal Register Pages per $Billion Real GDP 1940-20111816141210 8 6 4 2 0
  25. 25. 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.)
  26. 26. 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.
  27. 27. 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.  
  28. 28. Politician/ BrokersInterestGroups Bootleggers  &  BapXsts  is   a  transmission  theory   Broker first has a knowledge problem. Then, a justification problem
  29. 29. 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.    
  30. 30. 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.
  31. 31. 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.    
  32. 32. 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.      
  33. 33. 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.
  34. 34. Let’s just call itBootleggers &Baptistscapitalism.
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