It’s a mad mad mad regulatory world

by Eric Shierman

There are some really silly regulations out there. It’s amazing how the legitimate role of government in protecting us all from our neighbors’ occasional inclination to impose negative externalities on everyone else can snowball into rules that do the same. Often there is some rent seeking or other hidden motive behind an irrational law that works against the public good, but remarkably often there are other times where it is hard to identify any motivation beyond pure bureaucratic inertia.

Like cholesterol building up in our arteries, the cumulation of so many needless but extremely costly regulations is contributing to economic heart disease. The reason for this build up is rather strait forward. The more government intervenes into our private affairs, the more complex legislation needs to be to match the complexity of the world we live in. Given legislators’ short attention spans and our Madisonian form of government’s intentionally designed gridlock, more and more laws are being passed with vague language that includes the delegation of explicit law-making authority to executive branch agencies. These agencies are prone to direct lobbying by stakeholders as well as good old fashioned incompetence. Let us also not forget these human institutions hold ambitious desires for greater power too. Yet these agencies are not held accountable in a transparent way. This opaqueness that hides a great deal of power produces a great deal of economic harm by passing laws with little rational benefit to the public good.

For example, there is a distinct group of people within our population that might need to reduce their sodium intake; they smoke, are overweight, and their body reacts adversely to salt by compounding their hypertension. For those in which these stars align, they need to watch their diet on many levels, not just salt. For the rest of us, salt is a natural and safe ingredient in our food that we should be free to consume to our individual tastes’ preferences, a point made very clear by Melinda Moyer, writing for Scientific American as she points out how little scientific evidence there is to support a war on salt. Yet that is what the FDA is looking to wage as it is in the planning stage for a big move to begin setting federally prescribed “targets” for “stepwise” reductions in the amount of salt allowable in various foods. A phased implementation is being planned due to what the FDA describes as consumers’ “taste preference for sodium” which it claims is acquired and thus our tastes “can be modified” through the systematic reduction in how much sodium we are allowed to eat.

The Obama administration and Senate Democrats have been investigating the heck out of Google and appear to have several regulatory shackles in the works to impose on one of our economy’s star innovators. From anti-trust arguments for breaking it up to bizarre calls for a government agency to regulate how search algorithms display results, Google has learned it needs to watch its back. Providing excellent products to its billions of customers is not enough. The Washington Post held a remarkably candid interview with Google Chairman Eric Schmidt which I strongly urge you to read in its entirety here.

After a series of responses replete with Schmidt’s remarkably outspoken disgust for Washington’s interference in Silicon Valley’s innovation, the interviewer asked him where the disconnect first emerged. Schmidt’s response is very revealing about his professional experience with government:

Silicon Valley’s involvement with Washington dates from one event, which was John Scully—who was the CEO of Apple—had dinner with President Clinton and Vice President Gore in 1993. And we’re all going, like, what’s going on? Why would we have dinner with the president? And from that point on, people started to think it might be fun to hang out with these people.

So what happened was that there was something called the Clipper chip, which was the attempt by the government to enforce encryption on a particular communications aspect. And this was 1994. And it was the first time I know of that the Valley organized around a stupid technological thing that was going to be forced on us. This really had not occurred before. The chief proponent of the Clipper chip was Al Gore. So this is our first contact with Al Gore. All of us spent a lot of time and we eventually defeated it, but I think for many people that was sort of a wake-up call that the government could actually pass a law that was stupid, that would actually do something wrong and wouldn’t work.

Again I encourage you to read the entire interview.

In the past couple of years almost five hundred different hospital drugs essential for various treatments have come under an epidemic of shortages. The two that got the most press were very effective cancer drugs: Methotrexate which is crucial for fighting one of the most common forms of pediatric leukemia and Doxil which is used to treat ovarian cancer and AIDS-related sarcoma. There have been hundreds and hundreds more that have gotten less attention. What they all have in common is the expiration of their patents. These are all tried and true generic drugs.

Generic drug manufacturers struggle and often fail to comply with needless regulations that have nothing to do with product safety which the major pharmaceutical companies actually lobby for. In a classic case of regulatory capture, big Pharma is all too happy to pay for expensive regulatory compliance on the production of its high-margin patent-protected products so that the same costs get applied to their lower-margin generic producer competition, and when this causes a shortage of a particular drug, the major pharmaceutical companies are always there to sell hospitals the name-brand original for the right price.

The helium shortage we are facing today lingers as a problem 85 years in the making but is even more fun to write about because it has mostly just the Republican Party’s fingerprints all over it. Until a big government guy like Herbert Hoover came along, most Republicans in 1927 were a fairly free-market group except for one glaring exception: trade. Calvin Coolidge signed into law a helium export ban that eventually morphed into a nationalization of the storage and sale of this gas by Hoover. In a time of flammable hydrogen Zeppelins, the excuse at the time was that helium was a strategic resource for national security.

By 1996 the Federal Helium Reserve which spans from Texas to Kansas encased in brown porous rock was a big money loser, costing the federal government far more money to maintain than the intake of revenue from helium sales. The Republicans of the 104th Congress passed the Helium Privatization Act which turned out to be nothing of the sort. Since the domestic helium market structure was so distorted from the path dependency of a foolishly created government monopoly, consumers of helium lobbied to prevent the reserve’s sale to a private investor whose prices they could not control. So what Congress did instead was order the reserve to sell off all its helium by 2014. Far from a privatization, Republicans set up a regulatory framework mandating artificially low prices. The distortion this has predictably caused has led to the over consumption of helium and the absence of a private helium market to replace our national reserve. Now two years away from the deadline, the wasteful consumption of even this relatively low demand element presents hospitals and birthday balloon venders with a looming shortage at these regulated prices.

Our eager beaver Environmental Protection Agency has made more than its fair share of irrational rules. No matter the evidence, there never seems to be a shortage of environmentalists that will back the EPA in every circumstance if for no other reason than to grow its market share. These days however, its regulatory overstretch has grown to such an arrogance, even the Obama administration has been forced to make the EPA cough up several reversals.

My favorite example is the sudden expanded enforcement on farms and ranches of “coarse airborne particulates” (which is EPA speak for dust).  By lowering the standard from 150 micrograms per cubic meter to 65, businesses that are inherently dusty would be regulated out of business for little public gain. No doubt there are situations where one business’ dust imposes a negative externality on its neighbors, but that is clearly a decision for local zoning codes to decide.  The folks who live in Portland might have a different acceptance of having a dusty rodeo stadium near their city center than say the folks in Molalla. If a ranch in the middle of nowhere in eastern Oregon exceeded 65 micrograms, who should care? The powers that be in the Obama administration agreed. I’m glad they got this one right, but the ultimate problem of course is this attempt to impose a national standard on something clearly requiring local variation. A root cause to a lot of regulatory irrationality is the violation of the principle of subsidiarity.

Then there is the Americans with Disabilities Act, a source of bureaucratic mission creep so extreme, our highly regulated friends over in Western Europe look across the Atlantic thinking we are just plain silly on this issue. German retailers don’t have to suffer under the labor costs of cleaning up after defecating dogs in their isles under the fear that a little chihuahua might be a “companion animal.”

One of the more remarkable expansions however is to be found in the classification of alcoholism as a disability. Old Dominion Freight Lines like many other LTL carriers does not want to employ an alcoholic as a driver. In fact the Department of Transportation’s own regulatory policy requires a trucking company to immediately suspend one of its drivers upon the discovery of documented alcoholic behavior. That is exactly what Dominion did when it discovered that one of its employees had a drinking problem. Dominion even helped get their employee rehabilitative care, but they would not rehire him for a driving job. The US Equal Employment Opportunity Commission is now suing Dominion for violating that employee’s rights as a disabled person protected under the ADA.

I have of course just scratched the surface with these nine brief examples, the rise of truly harmful regulations has reached an epic level that has become a material factor in our sluggish economic growth, not the only factor, but a large one that is within our control to change. Thus I choose to conclude with an anecdote of optimism. Last week the FCC submitted to the FAA an exhaustive report detailing why the use of electronic devices during takeoff and landing poses no threat to the aircraft’s communication and navigation systems. Hopefully there are enough progressives out there annoyed that they can read a book as the plane goes into descent, but it is against the law to read from their Kindle so that there will be no ideological knee-jerk reaction to this long overdue act of deregulation.

Eric Shierman lives in southwest Portland and is the author of A Brief History of Political Cultural Change. He also writes for the Oregonian’s My Oregon blog.