The conventional wisdom about government regulation has begun to shift. The number of economic studies in the past dozen years which supports regulation nowhere nearly compares to the number of studies which demonstrate that the activities of regulators cost more than they are worth, suppress innovation, and protect the established interests at the expense of those who are not interested.
At a recent conference sponsored by the Graduate School of Business at the University of Chicago, Prof. Sam Peltzman made the point that the academic economists have become almost unanimous on the subject of regulation—yet the regulatory agencies are flourishing. Why?
Peltzman's analysis identifies three groups involved in the regulatory process: (1) the general public, (2) the consumerists who believe that everything should be regulated, and (3) the industry involved. The first group pays, the third group receives, and the middle group believes that the opposite is happening because they can't see the fingers of the invisible hand—but they can see the press releases and lawsuits of the regulatory agencies.
This is the "political marketplace" in action. In the political marketplace, success depends upon keeping happy the greatest number of significant, well-connected citizens at the expense of the greatest number of the insignificant and unconnected. The greater the number of the former the more one's agency flourishes, and the greater the number of the latter the less is the average cost—therefore the less likely any of the suckers will notice or care.
The real issue, therefore, is the blind spot of those who don't notice or don't care and the outright ignorance of those who are active "in the public interest" without the facts at their fingertips.
The American Enterprise Institute, 1150 17th St., NW, Washington, DC 20036 has recently set up a new research center to study government regulation. Chairman of the advisory council of the research center is Prof. Irving Kristol of New York University, who reports: "The objective of the council will be to assure that a broad range of views regarding the appropriate role of regulation in the national life will be considered in the research program and that the research meets the highest academic standards."
The A.E.I. catalog, which is free on request, has a large number of excellent research studies available in pamphlet form, often at no charge, and the overwhelming thrust of the material is libertarian. The A.E.I., however, as the statement by Kristol indicates, finds it most effective to avoid any obvious political slant. The tactic is to let the results of research speak for themselves. After all, if the libertarian answer is correct, the even-handed pursuit of truth will arrive at it. Much depends, however, on asking the right questions. It was by raising certain kinds of questions and issues relating to "social justice" and "wealth" that popular support of capitalism was destroyed over the last hundred years, and it will be by raising questions about the economic sense and nonsense of regulation that popular support of such notions will be influenced in the future.
The A.E.I. sponsors symposia, conferences, and panel discussions with representatives of all branches of establishment opinion. The "relevant range" of opinion is thereby moved inch by inch, from the respectable inside, toward the libertarian extreme. Twenty years ago, the "relevant range" was hardly wide enough to include libertarian proposals at all.
TEACHING QUESTIONS ABOUT REGULATION
At the University of Miami School of Law, the Law and Economics Center, Box 248087, Coral Gables, FL 33124 has been highly successful in the last two years communicating the basic insights of economics to those who are involved in the regulatory process. The L.E.C. sponsors an ongoing series of Economics Institutes of two to three weeks duration, including an Institute for Congressional Staff Aides, one for Federal Judges, and one for Law Professors. A Legal Institute for Economists has been added to the programs of the Center. An important element of the approach of the L.E.C. is to treat economic analysis as a necessary contextual background for legal analysis. With a proper understanding of economic processes, for example, the "necessity" argument which justifies most proposals for regulation becomes unpersuasive.
The Law and Economics Center recently published a "Catalog of Research Issues for Understanding National Economic Planning," since the question of government planning has been raised in Congress by the Humphrey-Javits bill and the more recent Humphrey-Hawkins bill. The catalog weighs over three pounds and is 1,750 pages thick. Copies can be purchased from the L.E.C. for $36.00, and demand by government agencies, businesses, and libraries has been brisk. The catalog, by detailing the complexity of the question, makes the sorts of claims which socialists used to make about the efficiency of planning false on their face.
Seemingly unrelated to the above-mentioned Economics Institute for Federal Judges, 44 judges have filed a suit in the U.S. Court of Claims, Williams v. USA, Ct. C1. 2/11/76 for the restoration of salary lost to inflation. The U.S. Constitution, Article III, Section 1, provides that the salary of judges shall not be diminished during their term of office. This suit might prove to be the beginning of the end for the present monetary system, which hinges on the central proposition that Congress can pass a legal tender law under Article I, Section 8 ("coin money, regulate the value thereof"), and then debase the currency at the expense of the judges, as well as everyone else.
Perhaps next we will see a suit against some Governor or Legislature by State judges demanding payment in gold and silver coin, under Article 1, Section 10.
Last November, the British House of Lords, which serves as a high court of appeals much in the manner of the United States Supreme Court, ruled that a British textile firm had to pay a Swiss textile exporter in Swiss francs, rather than in British sterling. This decision overturned a procedural rule of several hundred years that British courts could only make awards in British money. The Lords observed that the exchange rates had fluctuated in the three years following the date of the contract, and that to allow the British textile firm to make payment in British money would be a manifest injustice, cheating the Swiss firm out of much of its purchasing power. If the British pound continues to fall on the foreign exchange markets, very shortly nobody will make contracts in British money—and the British money will cease to exist.