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.



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Posted by at 05:57 | Posted in Government Regulation | 7 Comments |Email This Post Email This Post |Print This Post Print This Post
  • Rupert in Springfield

    Oh Ok, so let’s get rid of all regulations then. Fine! Child labor laws? Get rid of them! Dioxin in the drinking water? Let’s have more of it! Traffic lights? Why bother, just run people over.

    Sorry, just wanted to have an act like a liberal moment. where any questioning of government is advocating anarchy. We now return you to our regularly scheduled program.

    • sol668

      Rupert exaggerated hyperbole aside, is this the entire point of the RW? That the “free market” is a utopia, where all benefit and is inherently self regulating? We should all question government, but what the Right is incapable of is questioning is their utopist vision of capitalism…or alternately as I happen to believe…RWingers such as yourself enjoy seeing people suffer, enjoy the inequities of the free market where men are compelled to serve like peasants while others enjoy lives of unparalleled luxury, and government with its pesky “democracy” impedes the ubermensch (which you clearly believe yourself to be) from their rightful place as masters atop a pile of lessor “serfs”

      • Tyschev

        Sol, you should do some research about how societies come to have the Rich and the peasants. Our corporations would not be anywhere near so large if we actually had a free market. We would all have much better gadgets and better most everything. What level of regulation do you believe? Our government has become the biggest twisted back door dealing mess ever to be produced and so many people want more of it. DC provides for banks and in turn banks provide for DC, all the while those of us producing a market for them both are left on the sideline. Seems a bit like the master and peasant… Rules like “minimum wage” hurts everyone. Forcing equal pay across every job would take the motivation out of doing great things don’t you think?

        • sol668

          Tyschev, Capitalism is inherently an elitist enterprise, there was very little government intervention in the economy and society in the 19th century, which did not result in egalitarian outcomes, instead it produced the Robber baron era…which not surprisingly produced the backlash that is the progressive movement….policies precisely like the minimum wage requirement, the 40 hour work week, work place safety laws. Its only natural that the robber barons would oppose such measures, if they could pay a dollar a day and find workers desperate enough to accept it, they gladly would (and do in the third world today), one of the key logical failures of the RW IMHO, is the supposition that the interests of those at the top of the pyramid are the same as those on the bottom….If you are concerned with the undue influence of private companies on our government, through lobbying and regulatory capture, I agree, but one shouldn’t be surprised that in the most inequitable America in history that those on top would seek to use their monopolization of wealth to purchase policies favorable to themselves…the solution ? Enforce strict monopoly controls, Break up the big banks break up the drug companies, ensure that no one never becomes “too big to fail” again..Limit Campaign contributions, make the revolving door of lobbying a thing of the past by banning any representative of the people from ever lobbying the government once they are out of office..But mostly what I sense in your post Is the same market utopism endemic to the RW, saying “mimimum” wage laws hurt us all doesn’t make it so…and if you were to actually implement your ideas (doing away with pesky regulations like minimum wage)…I trust that once again just as in past there would be a progressive backlash to the real, and incredibly awful for the average citizen, outcomes those ideas produce, Perfect equity, is of course as ridiculously Utopian (from the left) , as the “free market” utopism of the right, and is neither possible nor desirable…..The rich will always be rich, good for them! The question that remains is, should the rest of society endure a constantly declining standard of living, to support rising inequity, simply because the Right believes its ideas to be moral, regardless of outcome?

  • valley person

    Eric, I’m sure there is a point to your post, but I guess I missed it. Anyone can find some dumb regulations, and anyone can find very useful regulations. If you have some idea for how to keep the useful and avoid the dumb, I’d like to hear it. Otherwise you just come across as another libertarian crank.

    • crabman34

      So now the right wing is reduced to saying that regulations both kill business AND make businesses too strong? Also regulations are bad because of regulatory capture? So the better answer is no regulations so that the agencies can’t be captured? That’ll fix the problem. Maybe regulatory capture arises when a concerted effort by an ignorant group of ideologues so weakens the agencies (through budget cuts, filibusters of nominees for agency heads, and politicizing risk) that they become toothless and prone to capture.

      Ah yes, the ADA is a prime example of overcreep, why? Because Eric says Germans think it is silly that American businesses sometimes clean up dog poop in their aisles? Is there an actual example or point there?

      And please do a little research into the health hazards of airborne dust. Eric, your point boils down to: some places are dusty, I don’t know want to bother thinking about why that might harm workers or travel to other places where it is harmful to other businesses or ecoysystems, I’m just going to say, “who cares.” That proves it.

      And the FDA is over-regulated! Tell that to the 33 people that died this year from meningitis from under-regulated drugs.

      I’m sorry, regulations under Obama still haven’t changed much from the average of Bush I, Clinton, and Bush II. It is an out and out lie that regulations are at an “epic level.” But keep telling yourself that lie and maybe one day it will become true.

      • valley person

        Airborne dust killed a lot of people back in the Dust Bowl days.

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