Your Teacher Said What?!

by Joe Kernen

  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:• Advertisements for contractors failed to comply with regulations that required listing the precise wages being offered, which, to mollify unions, had to be the “prevailing wages” of the area as provided by the federal law.27 It took seven months—from July 2009 to January 2010—to even figure out what the “prevailing wage” was.

  • Because the insulating work had to comply with yet another set of regulations—the National Historic Preservation Act—documentation was needed for every house that was more than fifty years old: two to three weeks for each one, and Detroit has a lot of old homes (which are the ones that most benefit from insulation anyway).

  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.

  Regulators like regulating so much that they even compete with one another: Genetically modified crops have to wade through dozens if not hundreds of regulatory hearings held by the Department of Agriculture, the Environmental Protection Agency, and the Food and Drug Administration. And they don’t always agree: Biotech sugar beets approved by the Department of Agriculture, for example, can be banned under the National Environmental Policy Act; ones approved by the NEPA can be forbidden by the Department of Agriculture. The result, for fans of unintended consequences, is that the only companies able to survive this regulatory death of a thousand cuts are really big—which means that the regulations beloved of places like the Center for Food Safety, the Sierra Club, and the Organic Food Alliance (to recognize the plaintiffs in a lawsuit intended to ban biotech sugar beets) are actually forcing small companies out of the business altogether and leaving the field free for Monsanto and DuPont, neither of which is probably a favorite of the environmental
lobby. Talk about unintended consequences.

  And that’s actually a big reason that free-market supporters find this so insidious. It isn’t that they want unsafe food or dangerous mines or Congolese wars. It’s that every new piece of legislation is a chance to pile new rules on the heads of American businesses, which are already drowning in the ones they have. In the end all I have to say is that brushing your teeth isn’t a classroom rule.

  Potentially the least offensive sort of regulation is the kind that requires manufacturers to tell customers just what’s in their products. Though labeling regulations aren’t cheap, a lot of their cost is actually what manufacturers call quality control: making sure that every batch of potato chips or shampoo or modeling clay contains the same ingredients as every other one. And while no business wants to share proprietary information with its competitors, anything that lowers the cost of comparing one product with another is generally beneficial to the economy; if businesses weren’t required to share information about the amount of electricity your new washing machine used, it’d be harder—more expensive in time or money—to find the one you want. It wouldn’t be impossible, of course: A trip to the library to read Consumer Reports, though, is a little more costly than just reading the label at Best Buy. If you must have regulations, those that reduce what economists call “information costs” are probably the least harmful. In fact, you can make a case that labeling regulations actually support free-market decision making because they leave the buying decision to the consumer: If I want to drive a gas guzzler, I can find the car with the worst mileage just as easily as the one with the best.

  In practice, however, labeling regulations do a lot to reveal just what the urge to regulate is all about.

  Here’s how it always works. Progressive logic (if that’s not a contradiction in terms) begins with the notion that everyone shares the same vision of the good life, that everyone, given a free choice, would decide to eat healthier food, use less fossil fuel, and (I guess) watch more public television and less Fox News. Since it’s obvious that they don’t always behave this way, it can only be because they have wrong, or not enough, information.

  The answer is required labeling. Warning labels on cigarettes. Nutrition labels on food. Energy Star labels. Fuel economy labels. All of them giving information to consumers about the products they’re buying.

  However, since the impulse behind adding labels to millions upon millions of products wasn’t to educate consumers but to change their behavior, the measure of the labels’ effectiveness isn’t how much information consumers have but what they do with it. And the goal of Progressives isn’t to make sure that we know how much nicotine we are putting into our lungs, or saturated fat into our arteries, or gas guzzlers onto our roads, but to get us to stop doing so. Which means that so long as people are still buying cigarettes or Big Macs or muscle cars, the labels aren’t doing the job. The next step, therefore, is to tweak the labels, which is why packs of cigarettes originally reminded us that smoking may be hazardous to our health and now rotate messages such as “Smoking by Pregnant Women May Result in Fetal Injury, Premature Birth, and Low Birth Weight” and “Cigarette Smoke Contains Carbon Monoxide.” (In late 2010, the FDA proposed yet newer labels under the Cigarette Labeling and Advertising Act: images including a toe tag on a cadaver.)

  And obviously, the increasing rates of obesity in America suggest that nutrition labels haven’t done the job either. Think that they’re already complicated enough, what with calories, calories from fat (and the amount of three different kinds of fat), carbohydrates, vitamins, and cholesterol? Marion Nestle, a nutrition professor at New York University (and one of the leaders of the “because it’s good for you” movement), agrees. This is why she has turned her attention to the front of the package: the part people see on the shelf. And because the nutrition information that companies currently provide on package fronts is intended to help sell products (Oh no! Not selling a product !), it tends to focus on the stuff that people want in their foods, like fiber or whole grains. Professor Nestle and her colleagues at the Institute of Medicine are trying to get the Food and Drug Administration to require that food companies include the bad stuff—the amount of salt, calories, and fat—on the front of every package as well as on the nutrition label itself, because, as the professor says, “all of this is about food industry marketing. If it weren’t about marketing, all this stuff would go off the packages and we would go back to packages that just said what the products were.”

  To Progressives, “marketing” is a dirty word.

  It’s not just the food police who get frustrated with the way people keep buying what they want, no matter how many times they’re told it might not be good for them. The Environmental Protection Agency and the federal Department of Transportation have been labeling new cars with gas-mileage estimates ever since 1975, with the goal of persuading people to buy more fuel-efficient cars.29 In August 2010, evidently out of concern that people were unable to figure out what “16MPG City/24MPG Highway” means, the EPA and DOT jointly announced a new labeling plan, under which cars would be given a letter grade depending on how virtuous—I mean economical—they were to drive. In order “to convince consumers to buy vehicles that use less energy,” the new labels would give A grades to all-electric vehicles and plug-in hybrids—those that are “charged with an electric power cord and have small engines,” while cars like the Ferrari 612 Scaglietti would get a D (apparently the EPA, like Progressive schools, can’t bear to give an F to anyone). Which means that someone in Washington actually attended a meeting where everyone agreed that someone considering buying a $300,000 car with 530 horsepower is going to care whether it received a D—and that it mattered, given the two hundred or so Ferrari 612 Scagliettis sold in the United States annually.

  Whether it’s a law firm buying special chairs for its paralegals because of Occupational Safety and Health Administration “ergonomic” regulations or an independent trucker forced to send a 1099 tax form to every service station from which he buys more than $600 in gas annually,30 regulations cost. A lot. At least one estimate is that the cost of federal regulations is more than 8 percent of America’s GDP—and because a big chunk of that is hiring departments full of people to fill out forms, the costs fall most heavily on smaller businesses, which aren’t big enough to have such people on staff.

  There’s a theory, in fact, that regulating is such an irresistible addiction for government that the number of regulations can’t help but keep growing, under both Republican and Democratic administrations. As government grows, so does regulation, and it’s certainly true that some Republican administrations haven’t exactly reduced the number of regulations that either stifle American growth or promote the interests of political cronies (usually both). Whatever you think about regulations, this theory goes, you can’t really blame one party for the thousands of new ones coming out of Washington these days, since no matter who is in power, they keep adding regulations.

  Nope.

  As David Frum reminds me, when I was Blake’s age, the federal government regulated the price of every ticket on every airline; the price of every cubic foot of natural gas; the size of the commissions that stockbrokers could charge; the amount of interest that could be paid on bank accounts; and even the content that radio and TV stations were required to broadcast in the form of political speech.

  Some of these regulations, like the “fairness doctrine” that was the result of the Communications Act of 1934, date to the original New Deal. And some of the most costly regulations in American history are even older; it was the Roosevelt administration, after all, that presided over the end of the biggest regulatory fiasco in U.S. history: Prohibition.

  But the president who really gave deregulation a good name—and so much else—was my hero: Ronald Reagan.31 From the 1982 breakup of AT&T to the 1987 sale of Conrail (the publicly owned company formed to take over the assets of the Penn Central Railroad in 1976), President Reagan presided over
the most significant deregulatory era in U.S. history—so significant that the portion of the American economy produced by highly regulated companies and industries, which represented more than 20 percent of the U.S. GDP when he was inaugurated, had dropped to less than 7 percent by the time he left office in 1988. Less regulation meant more productivity—more people making and selling more stuff at lower prices. Does it surprise anyone that we still remember that era as one of America’s most successful?

  Which brings me back to Blake, and those laws preventing tickets from being sold at market prices. As you’ll recall, Blake isn’t very fussed about my paying market prices for tickets she wants, no matter what the regulations say. On the other hand . . .

  “Dad?”

  “Yes, Blake?”

  “What’s the price for our book?”

  When she asked, the price on the book hadn’t been set, but I tried to field the question.

  “If what you’re asking, Blake, is what people will pay for it, that depends.”

  “Depends on what?”

  “Some stores sell books at full price, but a lot sell them at a discount.”

  “Discount?”

  “Several dollars less.”

  “Less?! Why should someone pay less?!”

  “Books aren’t like tickets to a Reds game, Blake. If a game is real popular, the price of the seats goes up, because there’s only one place to see the game and it has only so many seats. But if a book is popular, lots of places are selling it and competing for customers. So the best-selling books are the ones with the biggest discounts.”

  “So a lower price means we’re selling more copies?”