Friday, September 12, 2014

A Case Against Product Regulation

By Sean Gabb, commenting from Britain

There is currently much protest in the British media against proposals to regulate the consumption of home electrical appliances. For example, it is claimed that washing machines and kettles use more electricity than they need, and that limits should somehow be set to their wattage.

These protests have been given a European dimension. Since they come from the European Commission, the proposals have generated headlines almost as bad as “Now Brussels wants us to wear smelly knickers.” This is a pity. As Richard North often points out, the same proposals have been made in America and elsewhere in the world, and they come to Britain via Brussels only so far as the European Union is the means by which global regulations are implemented in Europe.

Regardless of who is making them, I deny that product regulation is necessary. Here are some brief objections:

First, it may be that modern electrical appliances need less electricity to do their job than we are in the habit of believing. If this makes appliances noticeably cheaper – either to buy or over their whole lifecycle – consumers will tend to choose them. All it needs is normal product advertising, or the urging of private advocacy groups. If, for whatever reason, people remain indifferent to noticeable savings, that is their concern. People surely have a right to waste their own money. Or, looking from a “green” point of view, every extra penny spent on boiling a kettle means one penny less to spend on petrol.

Second, it may be that the savings from lower wattage appliances are not significant at the individual level, but add up, at the collective level, to the saving of several new power stations. This is more likely to be the case, and here is an argument for what the economists call “external cost” or “market failure.” In such cases, the balance of cost and benefit to each individual produces outcomes that most individuals do not think desirable. The standard answer is regulation by the State.

On full examination, however, most alleged cases of external cost turn out to be other than they seem. Rather than a failure of unregulated markets to tend towards an optimal use of resources, they are evidence of state-imposed distortions in some other market. Here, the distortion is in the electricity market. Ever since the nationalisation of domestic gas supply in the 19th century, the ruling assumption has been that utilities should be provided through centralised networks at least underwritten by the State. This generally means that not all costs of supply are reflected in retail prices. Some of these costs – control of foreign supplies, for example – are loaded onto the people as taxpayers. Others – compulsory purchase laws for land, or privileged rights of way – are loaded onto specific property owners.

If this complex shuffling of costs were ended, it might be that a higher retail price for electricity would encourage the desired savings. Or it might be that the present system would be shown up as less efficient than some other way of generating or distributing electricity. Before pointing at one spot on the picture and crying “Market Failure!” we should try looking at the whole picture.

Third, product regulations are hardly ever made by disinterested experts. Mostly, they emerge from a dirty mix of bureaucratic sloth and ignorance, and capture of decision-making bodies by special interest groups, and outright corruption. That is how the ratios were set for automatic gear boxes in the American car market. That is how they are being set for electric light bulbs throughout the world. If products are safer or cheaper as a result, that is at best an accidental side effect of the process.

Fourth, even supposing a regulation achieves its stated purpose, it should be resisted. States rely on legitimation ideologies. Most of these ideologies include the claim that state regulation works in the public interest. Being able to show a regulation that does this is useful propaganda for a system that, as a whole, is both exploitative and inefficient.

Let me give a famous example. There is reason to believe that, had the British Government taken an active interest, during the 1840s, in telling the railway companies where to build their lines, we could have had a better network than we did in fact get. There is a continuous literature of cost benefit analyses of the burdens imposed by having two spines to connect London to the industrial cities of the North, and flowing from the largely accidental emergence of the railway gauge that we still use.

This being granted, the propaganda value of successful state direction would have offset any gains from efficiency by giving us a bigger State by 1870 than we had. The officials and the relevant interest groups would have ruthlessly used the precedent of successful regulation of the railways to justify regulating everything else.

It would be the same now. Let it be shown that cutting the consumption of vacuum cleaners from 2KW to 700W had saved the cost of building three new power stations, and that would not the end of the matter. The cry would go up for linking refrigerators to the Internet, so their temperatures could be turned up or down according to some agenda by the authorities, or for built-in motion detectors on electric lights to turn them off in probably empty rooms. Where regulation by the State is concerned, nothing ever ends in itself. Everything that works is made a precedent for something else. Anything that fails becomes an argument for something else.

In summary, governments impose greater costs on a country than washing machines and kettles that may use up more electricity than they technically require. State failure is more pervasive than market failure. This, not European scare stories, should be the case against the proposed regulations.



Obamacare's bill for small businesses? Big bucks, fewer jobs

Obamacare is taking a toll on small businesses, according to a new analysis of the effects of the health-care reform law, which found billions of dollars in reduced pay and hundreds of thousands fewer jobs.

Take-home pay at small businesses was trimmed by some $22.6 billion annually because of the Affordable Care Act and related insurance premium hikes, researchers at the American Action Forum, a center-right think tank headed by former Congressional Budget Office director Douglas Holtz-Eakin, found in a report released Tuesday.

Individual year-round employees at businesses with 50 to 99 workers lost $935 annually, while those at firms with 20 to 49 workers are out an average of $827.50 per person in take-home pay, the report found.

That report also says that there has been the loss of more than 350,000 jobs due to Obamacare-era premium hikes at small businesses.

In five states, the losses have exceeded more than 20,000 jobs apiece, including Florida, New York, Ohio and Texas. California lost an estimated 42,788 jobs due to Obamacare, the report estimated.

And those wage and job-level effects have come before the implementation of Obamacare's employer mandate, which beginning in 2016 will compel firms with 50 to 99 full-time workers to offer them health coverage or pay a fine.

"We find evidence that the labor force is absorbing these detrimental costs even before the government has started enforcing the most stringent ACA regulations," the report said. "These costs are likely a result of businesses preparing for the employer mandate, providing health insurance to workers and losing access to low-cost coverage."

"Obviously, these are huge numbers," lead author Sam Batkins said about the findings.

And because of the employer mandate coming down the road, "we expect the trends to worsen," Batkins added.

Batkins said the research detected a marked response at small businesses to insurance premium prices after the implementation of the ACA in 2010, in contrast to how those employers responded to price hikes before the law was adopted. Specifically, there was a correlation between small businesses' cutting jobs and workers' take-home pay being reduced when premiums went up after the ACA took effect, as opposed to before.

"While there was no significant relationship between health-care premiums and employment before the ACA, since 2010 small businesses have slowly started shedding jobs and reducing wages," the report said.

Batkins said, "The data sort of points to the law itself. ... Post-ACA, the trends are pretty stark in terms of reduced employment and reduced take-home pay."

For instance, for every 1 percent increase in total premiums paid for insurance for workers at firms employing 50 to 99 people, there was a 0.109 decrease in average weekly pay since the ACA, the report said. Before the ACA was passed, "we do not identify any statistically significant relationships" between wages and health premiums, the report said.

"Although the estimates might appear small, when one considers how premiums have changed since the ACA, the costs are profound," the report said. "Pre-ACA, total premiums in the average state cost $4,653 in 2009 and grew by 19.8 percent to $5,576 by 2013."

"So a 19.8 percent increase in total premiums is associated with a 2.2 percent decrease in average weekly pay," the report said.

In all, the $22.6 billion in reduced take-home pay equals 6 percent of all wages in the small-business category.

The 350,000 estimated jobs the report said have been lost in small businesses because of Obamacare came entirely from employers with just 20 to 49 workers.

"We do not find any statistically significant relationships between health-insurance premiums and jobs in businesses with between 50 and 99 employees," the report said.

Asked if the overall costs to small business employment and wages are warranted by Obamacare's goal of providing affordable health insurance to millions of uninsured people, and of improving the quality of insurance offered to enrollees, Batkins said, "I think the jury is still out."

"This report has shown that the costs are fairly high," Batkins said. "And the enrollment is going to have to be fairly high, as well, to cover the costs."



Why Is Dependency Rising, and Can It Be Reversed?

Often during an economic recovery, welfare caseloads fall as jobs return. In this recovery, welfare caseloads kept climbing through 2012. That’s the message of a new Census Bureau report released last week, which found that, at the end of 2012, the number of Americans in households collecting “means tested” welfare assistance was officially 109 million.

That’s close to the number of people huddled around TV sets to watch the Super Bowl.

It’s also 35 percent of all households that receive at least one form of public assistance – food stamps, Medicaid, supplemental security income, nutrition programs for kids, housing aid, and so on. Many tens of millions receive multiple forms of aid.

This number does not include those on disability and unemployment insurance. That’s millions more. Social Security and Medicare are earned programs, so they are not included.

When 109 million Americans are on some form of welfare assistance, we have to wonder whether we have reached some kind of welfare tipping point.

Have we reached a welfare tipping point? No. I disagree that the trend of dependency is irreversible.

We succeeded in reducing government dependency in the 1990s, when governors like Tommy Thompson of Wisconsin and John Engler of Michigan began to experiment with work and educational requirements, time limits and so on, to encourage work over welfare. Then the feds enacted a landmark welfare reform bill in 1996, which adopted many of these reforms on a national level. These reforms – coupled with an economy that was creating millions of new jobs – helped reduce cash welfare caseloads by more than half in five years.

Why is dependency again on the rise? Today many of those reforms are gone. Only 5 percent of the welfare today is through the old cash assistance program. Now the new welfare is food stamps, disability, and unemployment insurance, to name a few. President Obama repealed the limited work requirements for these programs. Last year when Republicans dared insert even modest work requirements for food stamps applied only to nondisabled adults without children, they were accused of being cruel.

The Left has encouraged more welfare participation. President Obama boasts that Obamacare has already added 3 million people to Medicaid rolls, as if more welfare caseloads is a policy triumph. Nancy Pelosi has called food stamps and unemployment insurance one of the most effective economic stimulus programs.

Welfare caseloads aren’t falling in part because this administration doesn’t want them to. Times sure have changed. Bill Clinton boasted about the reduction in welfare caseloads in the 1990s.

What’s most important as a first step toward restoring self-reliance is to at least acknowledge as a nation that when there are 109 million Americans collecting some form of welfare, we have a crisis on our hands. It’s partly the economy, but partly cultural. The poverty lobby has worked hard to erase any negative stigma attached to welfare benefits. In some cities in America food stamps are like a parallel currency. By the way, in 2012 there were 51 million Americans on food stamps.

One possible approach has been suggested by Rep. Paul Ryan. He would turn many of the welfare programs, like food stamps, back to the states so they can find ways to expeditiously move people swiftly back into work.

What is for sure is that the feds have failed in replacing welfare with the dignity of work. Or worse, they haven’t even tried.



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