Your Teacher Said What?! (20 page)

Licensing regulations, no matter how obviously they benefit one group at the expense of everyone else, are usually sold to the public as a public benefit: more safety or reliability or something. Other regulations are sold to the public to correct a “failure of the market.”

That phrase, of course, is a loud warning siren for anyone who believes in the free market, since the idea that the market can't produce what some people think of as an efficient (or, more likely, “fair”) outcome is one of the first commandments of Progressivism. The typical regulation-happy Progressive, for example,
always
argues that laws are needed to regulate industries that are “natural” monopolies, like telephone service or power utilities. The market, they tell us, can't allocate these “scarce” resources; without regulation of telephones and electric power, the argument goes, companies would build a dozen telephone poles outside every house in America.

The reality, as always, is a little different. Way back in 1960, an economist named Ronald Coase took on the idea of the need for government regulation in the free market, even in those areas where everyone “knew” the need was obvious. Radio airwaves, for example, “needed” regulation because otherwise stations would broadcast on frequencies that were too close together, thus interfering with clear transmission. Coase showed that so long as there were clear property rights to given frequencies and low costs for buying or selling those rights, the market would very quickly resolve any interference problem, since the station that wanted the space in the broadcast spectrum more would pay the station that wanted it less.

Needless to say, this is not exactly a communications policy favored by Progressives—in this case, generations of Progressives in both political parties—who fear and distrust
any
solution that is generated by the unaided free market. But whether the stated reason for regulation is public safety, promotion of a “good” special interest (like unions or homeowners or the disabled), or prevention of “market failures,” the most reliable characteristic of regulations, in addition to adding cost to economic transactions—something that Progressive bureaucrats aren't paid to care about anyway—is that they hardly ever accomplish what they were intended to do, and almost
always
have some genuinely bad unintended consequences.

For example, while I made fun of licensing barbers and tour guides above, the Kernen family actually likes hiring licensed plumbers and electricians because of the peace of mind that comes with the (sometimes naive) belief that the people installing a new toilet actually know what they're doing. Similarly, when I had an emergency appendectomy last year, I didn't check to see that the surgeon had actually attended medical school, trusting to the various regulations—board certifications, state licensing—that would do the checking for me.

However, that unseen diploma is actually a pretty good example of the problem with good regulatory intentions. Back in 1910—not at all coincidentally, the high point of the first American Progressives—the Carnegie Foundation hired a guy named Abraham Flexner to write a report about the state of American medical education, which was, at that moment, kind of a mess. America's medical schools were more like vocational schools, usually run by a few doctors and requiring nothing more of their students than a couple of years of lectures, with no lab work or hands-on practice. Most didn't even demand a high-school diploma. The Flexner report recommended a whole lot of changes: requiring at least two years—later four—of college, plus at least four years of medical education, plus additional time to learn a specialty. It also recommended closing the medical “trade schools”—reducing the number of medical schools from 155 to 31—and requiring every medical school to affiliate with a university.

The result, once the recommendations were adopted by the medical establishment—and, very important, enforced by state regulations—was a system of medical education that looks a lot like the one my surgeon went through. It also created a regulatory cartel. Since no medical school could open its doors without the approval of the state medical association (or educate more than a state-approved number of doctors), the number of physicians dropped like a stone, resulting in a
lot
more income for the ones left. And much larger medical bills for the American public. Better medical education was definitely a well-intended Progressive goal; its price was an agreement to not just improve medical education but also to restrict it in order to keep prices high.

Or consider the Americans with Disabilities Act. Hardly any federal legislation of the past fifty years had better intentions or more widespread support; in 1990 the ADA passed the U.S. House of Representatives by a vote of 377 to 28 and the Senate by a vote of 91 to 6. Its primary objective was to improve job prospects for disabled Americans. However, employment of disabled men in their prime earning years—age twenty-one to fifty-eight—
declined
after the passage of the ADA—almost certainly because the ADA turned the disabled into litigation time bombs, or at least created that perception in the minds of potential employers.

The ADA also produced at least one unintended consequence that deserves to be called mind-boggling: As reported by the invaluable libertarian reporter John Stossel, the
Exxon Valdez
's captain, Joseph Hazelwood, had already been in rehab for alcoholism before running his tanker aground in Prince William Sound in 1989. In response, Exxon subsequently prohibited employees with a history of drugs or drinking problems from holding similar jobs. However, in the intervening months, the ADA had passed, with the result that those employees argued that alcoholism was a disability, then sued under the law's nondiscrimination provisions—and won.

Want more? The explosion of BP's Deepwater Horizon drilling rig on April 20, 2010, was by any measure a huge mess: nearly 5 million barrels (or 185 million gallons) of crude oil. For months the cleanup, which as of this writing is still going on, was priority number one for dozens of different federal, state, and municipal governments—or it should have been. A short list of even higher-ranking regulatory priorities would include the following:

And of course, the teams cleaning up the BP spill had to contend with the Environmental Protection Agency, which might as well be renamed the Unintended Consequences Agency: Within days of the accident, the government of the Netherlands offered the world's most advanced skimming equipment to suck up the oil in the water—but the Environmental Protection Agency had a higher priority: the regulation that required that returned water be 99.985 percent pure, containing oil in a ratio of fifteen parts per million. It took more than a month before the paperwork on the skimmers showed that they, in fact, did so, a month during which the blown well was pouring more than sixty thousand barrels of oil into the Gulf every day.

Oh, and because skimming was—obviously—not the highest priority, oil reached shore, which resulted in another regulation, this one directly from the secretary of the interior, Ken Salazar, who decreed a moratorium on deepwater drilling. He was apparently indifferent to both the loss of twenty thousand well-paying jobs, the opposition of the National Academy of Engineering, and even a ruling by a U.S. District Court judge. The urge to regulate, it turns out, is
always
priority number one.

There's a reason, of course, that Progressives are so reflexively supportive of regulation, convinced that regulation is always their first solution, that a failure of regulation can always be solved by more regulation. Regulation is a way for smart people to tell everyone else what to do. And because regulations are government's way of substituting for the free market, they don't have to meet the first criterion of a market-based solution, which is that the costs shouldn't exceed the benefits. Regulators don't have to count, for example, the number of jobs lost because of their good intentions.

Entire books, of course, have been written about the job-killing consequences of regulation, even when—maybe especially when—the regulations are in conflict with another priority. The Obama administration has made some brave noises about support for more nuclear power plants but has done nothing to change the fact that China and France can build a nuclear power plant in three years, while in the United States it takes ten—entirely because of additional regulation and its inevitable partner: lots and lots of lawsuits.

But absolutely nothing illustrates the sheer idiocy of most regulation better than the American Recovery and Reinvestment Act (ARRA)—the $800 billion “stimulus bill” that was passed in February 2009—which has put so many regulatory strings on its money that it has practically written an encyclopedia of unintended consequences.

A simple example: $5 billion of the stimulus money was supposed to be used to pay for insulating homes. Without debating the underlying illogic of this—if insulating was worth doing, a private market would already exist for it at a lower cost—let's say it wasn't in the running to win the award as the dumbest project in the ARRA, a fierce competition that would range from the half million dollars budgeted for the Forest Service to replace the windows in a closed visitor center near Mount Saint Helens to the more than $300 million dollars allocated to a clean-energy program in partnership with (this is almost too easy) BP.

In Detroit, however, this money—which was, let's not forget, supposed to get money into the economy quick enough to
stimulate
it—took more than a year to find its way to the city agency responsible for weatherizing. Here's why:

As a result, this particular portion of stimulus ended up traveling so slowly that it was nearly a year before any of those dollars found their way into the hands of the American people.

It's not as if we don't have enough history to know that this sort of thing is pretty much inevitable. Back in the 1930s, similar policies were part of FDR's National Industrial Recovery Act, which offered antitrust exemptions to businesses if they raised wages. Companies in industries from auto production to chicken farming created (in order to get federal largesse) a code of “fair competition” designed to get rid of the “excessive competition” that the Roosevelt administration thought had caused the crisis. Well, the Act sure got rid of “excessive competition”—by cutting output, not exactly what a recovery needs. The result: It both distorted and delayed what might well have been a market-driven recovery from the Great Depression.

And though the NIRA was declared unconstitutional in 1935, many if not most of its policies survived. Some of them even survive to this day. The ARRA, for example, includes an almost identical “buy American” provision (originally drafted in 1933 to end the Depression—and
that
worked, didn't it?). The present-day version requires that all iron and steel used in ARRA projects be manufactured in the United States and, in addition to being completely useless, is so complicated that no one understands it. The cement used to make concrete on-site has to be American made, but not the concrete mixer or the shovels. The
exceptions
to this particular provision run for hundreds of pages, including a new and wonderful definition of “manufactured” (if it's assembled on-site, it's manufactured; if it was assembled elsewhere, it's—probably—not).

The ARRA was signed by the president on February 17, 2009. Bad as its regulations were, at least they were temporary: Once the stimulus had traveled through the economy, they would be gone. For the Restoring American Financial Stability Act of 2010, signed in July 2010 and better known as the Dodd-Frank Financial Reform Bill, regulation is forever.
²⁸
And mysterious:

 

“Blake, tell me a rule you have at school.”

“Well, we have to bring our homework or stay in the classroom during recess.”

“Okay. What else?”

“We have to raise our hands before we talk. And we have to sit in our assigned seats. And—”

“That's enough. Let's call these the ‘classroom rules.' What if one of the classroom rules was ‘All fifth graders can't watch TV after eight o'clock?' ”

“That's
not
a classroom rule!”

 

No, it isn't. On the other hand, people who love regulations can't help combining “home rules” with “classroom rules.” The financial reform bill includes, among its 240 new regulations, a set of mine safety regulations (section 1503: Reporting Requirements Regarding Coal or Other Mine Safety), which you might think would be the responsibility of the Interior Department. It also includes a requirement that companies disclose any purchase of minerals from the Republic of the Congo (section 1502: Conflict Minerals). Like a teacher who tries to regulate behavior outside the classroom, legislators sometimes just can't stop themselves.