Sunday, May 24, 2015

The Importance of Economic Education in Regulatory Reform

A Mercatus Center blog post from last year on the need for regulatory reform popped up in our Twitter feed yesterday. The article makes several points about the need for a process of consistent regulatory reform. Specifically the authors note that
The total number of restrictions in federal regulations has grown from about 835,000 in 1997 to over 1 million by 2010. Over time, these accumulated restrictions can either directly foreclose paths to innovation or entrepreneurship or add up to the point where their cumulative cost makes certain actions prohibitively expensive.
They go on to state that every president since Carter has tried to reduce the burden of "nonfunctioning" regulation, but there has not been a substantial decrease in the number of pages in the Code of Federal Regulations (CFR). In fact, the CFR has consistently grown over the last several decades.

The authors indicate that a process for eliminating nonfunctioning regulations has not been put in place. They argue that such a process is unlikely to be implemented because bureaucracies have an incentive to grow their budgets. Because of this, they work to maintain out-of-date regulations even though said regulations are no longer necessary (or, we might find, were never necessary in the first place).

The authors offer a set of guidelines that could direct successful regulatory reform. While these are important, they are all predicated on the idea that the public is at least informed to some degree as to how these agencies and regulations function. For this regulatory review/reform process to be enacted, the poor incentives of bureaucrats have to be overcome, perhaps by legislative action. However, congressional action on this matter is not likely unless elected officials feel pressure to get rid of outdated regulations.

Economic education on the topic of regulation is crucial and should include both theoretical (Stigler's capture theory & the Bootleggers and Baptists phenomenon) and empirical (effects of regulation on growth, productivity, and entrepreneurship) aspects. Regulation has been discussed several times on this blog, specifically regulation in agriculture. This blog will continue to be a source of regulatory economics education both within and outside the agricultural industry.

We have the tools and, thanks in part to the Mercatus Center, the data to assess the impacts of regulation on the economy. It's important to improve the public's understanding of regulation so that reform can occur as needed.

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