Capture is part of regulation itself


Here’s a letter I sent to the WSJ about a week ago

by D. Pontoppidan, Summer Fellow at the Mackinac Center

Thomas Frank [“Obama and Regulatory Capture, June 24] calls the present moment a time “for a ringing reclamation of the regulatory project.” To protect consumers, he argues, we need regulation, and better people in charge, lest we suffer from “regulatory capture,” a concept developed by the Chicago economist George Stigler.

I am reminded of another Chicago economist, Milton Friedman, who once recounted the history of the Federal Register, which records all matters concerned with regulatory agencies in the United States. From its inception in 1936, the Federal Register grew from 2,599 pages and six inches of shelf space to 36,487 pages in 1978, the year before Friedman’s book ‘Free to Choose’ was published, taking up 127 inches of shelf space – a veritable 10-foot shelf. Though the Federal Register was not even able to tell me the number of pages they publish today, they did inform me that they now published on a daily basis.

There are two myths at play in Frank’s article. One is that a lack of regulation was to blame for the financial crash. The second myth is that the answer to regulatory capture is to get better people into regulatory agencies. The whole point, however, of regulatory capture is that it is an inherent flaw in the system. To quote Stigler himself, “The state—the machinery and power of the state—is a potential resource or threat to every industry in the society. With its power to prohibit or compel, to take or give money, the state can and does selectively help or hurt a vast number of industries.” Leaving consumers free to choose on an open market seems a better way of punishing those who deal in bad products.

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One thought on “Capture is part of regulation itself

  1. Clyde Crews puts out the report “Ten Thousand Commandments” for the Cato Instutute about national regulation. According to a Detroit News commentary he co-wrote, the 2008 Federal Register came in at 79,435 pages. I don’t know what the official thickness of that is, but by my rough calculations, it is somewhere around 25 feet thick.

    From the article, “Businesses spent $1.17 trillion in 2008 to comply with federal regulations. The government spent another $49.1 billion to enforce them. The total spent on regulation is right up there with Canada’s entire 2006 gross domestic product of $1.265 trillion.”

    http://www.detnews.com/article/20090603/OPINION01/906030310/1008/OPINION01/Stimulate-economy-through-deregulation

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