Thursday, January 11, 2018

The Deregulation Fairy

by Neil H. Buchanan

One of the myths that Republicans have successfully planted in the mind of the media is that American businesses have been excessively regulated.  This has led to credulous reporting about the supposedly "onerous burdens" of federal rules, recitations of the number of pages in the Code of Federal Regulations, and so on.

That old myth has now oddly merged with a new myth that grew out of the 2016 elections.  American political reporters and editors decided that they had been living in a bubble and thus failed to see the misery that purportedly led a surprisingly large minority of voters to pull the lever for Donald Trump.  Solution?  Send reporters to The Heartland to talk to Real Americans about why they like the man-child that they put in the White House.  Be respectful.  Believe whatever they say.

The results have been absurd, reaching a low point with an infamous New York Times piece in November of last year about a Nazi sympathizer who lives in Ohio.  The article was rightly mocked for normalizing a sociopath (He likes "Seinfeld"!), and The Times backtracked furiously.  Yet that incident only served to highlight the ridiculousness of the efforts by self-flagellating media types who think that their job is to engage sympathetically with people who voted for an obviously racist candidate and campaign.

How do these two myths fit together?  Coastal reporters are going to The Heartland again, but not to talk to the supposedly forgotten people who flipped from the Democrats to the Republicans and put Trump in office.  Instead, the new move is to interview Republican businessmen and then gullibly report what they say about Trump's deregulatory agenda as if it must be important and true.

To be clear, I am not equating the hatred of white supremacists with the self-important reactionary politics of local business elites.  What I am doing is equating the instinct on the part of reporters and editors that talking to people in the Midwest brings with it a requirement to present anything that the interviewees say in sympathetic terms.  Uncritical reporting is stenography, and it can make absurd ideas seem normal.

Back in April of 2017, The Times presented the world with an article written by a Business Section reporter who described the newfound confidence that business owners were feeling after Barack Obama had left the White House.  In part because the story was filed from my hometown (Toledo, Ohio), I took special notice.  What, I wondered, could the business types of a struggling post-industrial city like Toledo tell the world about Obama and Trump?

The answer was wondrous in its banality: Toledo's businessmen did not like the Democrat but liked the Republican.  Executives and owners preferring the pro-business party over the not-quite-as-pro-business party?  Who would have guessed?

But it was the reasoning (if you can call it that) that made the article memorable.  The problem with Obama, in the eyes of these Toledo big shots, was that they were sure he disliked them.  One local car dealer is quoted as saying: "With Obama, you felt it was personal — like he just didn’t want you to make money."

This is a perfect illustration of what Paul Krugman memorably called the "Ma, he's lookin' at me funny" theory of economics.  Supposedly, businesspeople are so fragile (snowflakes, even) that they cannot stand being told that some of them engage in bad behavior.  And when you make them abide by rules, they sulk.  When Trump won, they exulted.

The same basic story line dominated another Times article that I discussed in a column last week.  On New Year's Day of this year, Two Times reporters wrote a top-of-page-one story about how Trump's promises to deregulate business had led to a "wave of optimism [sweeping] over American business leaders."  As I described in my column, the article's authors went out of their way to acknowledge everything that is wrong with the story they were telling, but they told the story anyway.

A nearly perfect followup to their colleague's April piece from Toledo, these reporters claimed that businesses in America are humming again because their owners and managers are so, so excited about Trump's orthodox Republican deregulatory impulses.  So excited, in fact, that "it is beginning to translate into the sort of investment in new plants, equipment and factory upgrades that bolsters economic growth, spurs job creation — and may finally raise wages significantly."

Golly gosh, that sounds good.  That claim, in fact, is in the opening paragraph of the piece, and it sets the tone for the idea that even people who hate Trump should marvel at how much confidence Trump's presidency has inspired among the mythic "job creators."  The headline even dubbed this "The Trump Effect."

In my column last week, I said all that I want to say about the silly political conclusions in that Times piece and the Republicans' hypocritical claims about "stability" as a driver of business confidence.  What I want to add here is a refutation of the idea that regulation is bad for the economy and that deregulation is therefore good.

As I noted above, however, The Times article already does that to a large degree.  "There is little historical evidence tying regulation levels to growth."  "The evidence is weak that regulation actually reduces economic activity or that deregulation stimulates it."  In each case, however, we are then treated to a "but."  Immediately following that last quoted disclaimer, for example, we get this: "But business executives are largely convinced that the cost of complying with rules diverts money that could be invested elsewhere."

The authors then list all of the reasons that the economy is doing well, none of which have anything to do with deregulation.  "But business executives say the Trump administration deserves credit."  Get it?  It is not that there is any evidence of a real effect, but business types just feel it

But surely that must matter, right?  The great liberal economist John Maynard Keynes famously said that the "animal spirits" of the captains of industry were a better explanation of swings in business investment than anything else.

And The Times thus quotes a liberal economist, Jared Bernstein, who first notes that there is no evidence that deregulation causes growth (which should be the headline, but I digress) but then says this: "What does matter is this idea that confidence matters. If their expectations about the future are positive, then it does make a difference."

Has it made a difference?  Not at all.  Again, the article itself notes that all of the positive economic developments that we can see in the U.S. (developments which, unfortunately, still stubbornly do not include adequate increases in incomes for the non-rich) are extensions of trends that began in the Obama era and are mirrored in Europe and elsewhere.  There is no Trump effect in Denmark or Germany.

But what if it were true that these newly deregulated business owners and executives would respond to their newfound liberty by expanding their businesses?  What if there really were a Deregulation Fairy who granted out wishes for higher GDP if only we agreed to let businesses be giddy about a hyper-conservative deregulatory agenda?  Would that not be wonderful?

Actually, no.  The regulations that Trump is rolling back include things like canceling "several rules approved at the end of the President Barack Obama’s term, including a regulation on limiting mining debris in streams, a requirement that broadband providers obtain permission from customers to collect and use online information, and a ban on plastic bottles in national parks."

This reminds us that "deregulation" can be merely a euphemism for "making the world dirtier and more dangerous."  Again, the article itself tells us as much: "[H]home builders have benefited from the killing of regulations written by the Obama administration, including a rule that broadened the definition of wetlands, which could have restricted home building in certain areas. The National Labor Relations Board also reversed a decision that made builders more responsible for the working conditions of their contractors’ employees."

So you liked it when Houston flooded due to excessive development, heedless of the effects of overbuilding?  You thought it would be great if employers could evade worker safety regulations by turning their employees into independent contractors?  Then the Deregulation Fairy is your gal.

In the end, even the best version of the pro-deregulation story says that we can trade off our safety and health (and privacy) for an increase in measured GDP.  But that merely reminds us how woefully narrow the definition of GDP is.

There are intelligent methods to measure the usefulness of regulations and to reject the ones that are a net burden on society.  In fact, we have used those methods for years, including under Obama.  Trump is getting rid of all that, because Republicans know in their DNA that deregulation is good.

Republicans and their business backers want everyone to forget about the consequences of giving them carte blanche with our lives.  Just think of the jobs and growth -- which, according to the evidence, are not coming.  But even if they do, the trade-offs are not worth it.


Eric Charles said...

Bring on more deregulation! From an interview with Ronald Coase in 1997:

Reason: Can you give us an example of what you consider to be a good regulation and then an example of what you consider to be a not-so-good regulation?

Coase: This is a very interesting question because one can't give an answer to it. When I was editor of The Journal of Law and Economics, we published a whole series of studies of regulation and its effects. Almost all the studies--perhaps all the studies--suggested that the results of regulation had been bad, that the prices were higher, that the product was worse adapted to the needs of consumers, than it otherwise would have been. I was not willing to accept the view that all regulation was bound to produce these results. Therefore, what was my explanation for the results we had? I argued that the most probable explanation was that the government now operates on such a massive scale that it had reached the stage of what economists call negative marginal returns. Anything additional it does, it messes up. But that doesn't mean that if we reduce the size of government considerably, we wouldn't find then that there were some activities it did well. Until we reduce the size of government, we won't know what they are.

Reason: What's an example of bad regulation?

Coase: I can't remember one that's good. Regulation of transport, regulation of agriculture--agriculture is a, zoning is z. You know, you go from a to z, they are all bad. There were so many studies, and the result was quite universal: The effects were bad.

Shag from Brookline said...

Here's a link to that Reason interview of Coase:

I've only scanned it and plan to read it later. I'll then search for the reactions of economists to the interview. Was Coase paving the way for the Second Gilded Age?

Regulations can come about in various ways. For example, following the Reconstruction Amendments, Jim Crow, both de sure and de facto, regulated lives of former slaves and their offspring. Was this "good" regulation or "bad" regulation?

Joe said...

This is off topic for Shag per Eric Segall's Twitter.

"What you are missing is public-meaning originalism is not unique to the Constitution or even legal texts. It’s literally how humans communicate. We’re doing it right now. You’d never use “evolving meaning” to follow a 17th-century recipe for muffins."

One reply: "Butter is processed differently. Sugar is refined. Grains are ground differently and enriched with stabilizers. Milk is now skim and 2%. If you followed an 18th century recipe word for word damn straight you'd have a different muffin."

Anyway, many Republicans support regulations such as special rights for certain religious groups. See also, Sessions and marijuana. It depends.

Shag from Brookline said...

And many Republicans, especially the old white guys who get themselves pictured with Trump at every opportunity, may rely upon "Depends" and their personal concerns with "trickle down" politics.

As to 17th century recipes, some called for clarified butter. I've commented in the past on my exposure to Berwick Cakes Whoopie Pies in the late 1930s here in the Boston area. Berwick's is long gone. Occasionally Whoopie Pies resurface, including at Whole Foods (pre-Bezos), but they don't taste the same because ingredients may change - or perhaps age has evolved my tastebuds. And my local Whole Foods came up with Hermits in its bakery section, another pastry favorite of my youth. Alas, for over a year Hermits have not returned on the pastry tables. (Are you listening Jeff Bezos?) Why are Hermits in hiding?

As for Segall's Twitter, I have one word: Hermeneutics. But this brings to mind that musical aggravation of yore Herman's Hermits.

Shag from Brookline said...

The Take Care blog features a symposium on "Constitutional Coup: Privatization’s Threat to the American Republic" by Jon D. Michaels on efforts to undermine the administrative state. Might deregulation further widen the severe income/asset gap? What would America look like if we were to rely on industry/business self-regulation? What might federalism look like today but for efforts of legal groups with the establishment of uniform laws, forms of regulations that many states adopted? Back in my law school days (1951-3), I took courses titled Bills & Notes, Sales, etc, that years later were included in uniform laws adopted by many states. I recall studying the Law Merchant, the Negotiable Instruments Law, and the Sales Act. At the time legal groups were considering what eventually evolved as the Uniform Commercial Code that was being discussed on Beacon Hill by MA legislators. My professor testified against the UCC, telling us in class that it was socialistic. But business/industry in a growing economy post WW II needed consistencies throughout the states on certain aspects of governing law that differed from state to state. (It took a long time for LA to adopt the UCC.) States rights/federalism had been obstacles. Over the years, uniform laws have worked well, and continue to evolve. The foundations of devising uniform laws were to address existing laws and consider how they might be improved as changes took place in the American economy and the world of commerce.

Now in the Internet age, perhaps there is a need to address how to make sure the Internet works for the benefit and protection of Americans. Can we rely upon self-regulation by Internet giants? Can we rely upon the Republican Congress? Might the Coase course lead to chaos?