Government Reform

Richard Epstein's Medicine for the Continuing Crisis: "Deregulation Now"

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Writing in Forbes, the esteemed legal theorist and occasional Reason contributor proposes some New Year's resolutions for public policy. Excerpt:

If it's good enough for Motorhead, it's good enough for me

At this point, it won't work to reaffirm the deadly triumvirate that drives this misery: tax the rich, greater local control over real estate development and special privileges for organized labor. […]

On real estate, change the culture so that getting permits for yourself and blocking them for everyone else is no longer the preeminent developer's skill. The government can still prevent buildings from falling down and fund infrastructure through general taxation. But don't let entrenched landowners and businesses raise NIMBY politics to a fine art. Today our dysfunctional land-use processes too often build thousands of dollars and years of delay into the price of every square foot of new construction. The instructive requirements on aesthetics and handicap access should be junked, along with the crazy-quilt system of real estate exactions that asks new developments to fund improvements whose benefit largely belongs to incumbent landowners. And for heaven's sake, learn the lesson of Kelo and stop using the state's power of condemnation for the benefit or private developers. […]

First, do no harm. And yes, that includes cartoons with explanatory labels on each image.

State and local governments should never, repeat never, be forced to negotiate with local unions. The huge pensions garnered by prison guards in California or transportation workers in New York present the intolerable spectacle of requiring ordinary citizens to pay huge subsidies to union workers far richer than themselves. On the private side, don't force developers to hire union workers on construction sites or to block the construction of new facilities that hire nonunion labor. If unions are really efficient–and they aren't–let them compete like everyone else. […]

None of this activity costs the public a dime. All of it will increase tax revenues and reduce administrative expenses. The best test of a good policy is whether it is sustainable over the long haul. We know now that the progressive regime flunks this key test. At this point, all good libertarians can only take cold comfort that they have fought these destructive policies tooth and nail.

Link via Instapundit.

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  1. cold comfort it is indeed, since libertarian opposition so seldom manages to overcome the avarice of our fellow citizens who think money and government goodies grow on trees.

  2. Epstein is a smart guy, but this article is a bit funny. Union labor costs and eminent domain certainly weren’t the cause of our current economic woes. Much more at the center of that was deregulation and foolish market activity.

    1. What regulations were removed that led directly to the housing bust and mortgage collapse?

        1. Very good MNG. Now can you explain to the class exactly how this is to blame? Please be sure to include how similar rules had been in place in Europe for many years with no ill effects.

          1. Yeah, right. MNG is a fucking moron who keeps spitting out the latest leftist meme thinking it actually stands a fighting chance at logic.

    2. No, it was regulation and Bush->Obama bailouts and corporate welfare.

      Or maybe you were sick that day and missed the news.

  3. I’m also not sure that unions are supposed to be “efficient” in the way Epstein and many libertarians talk about. Look, I could have agreed to do the same work for my boss for less money and that would be more “efficient” in terms of some cosmic sense of productivity, but does that mean it is ever bargainers duty to do as much as he can for as little as possible? That strikes me as nonsense…

    1. Maybe you’re just a shitty negotiator of your own market value.

      1. Dude, can you read? I said “I could have agreed…” I didn’t. I imagine I make more than you, no union either.

        1. Oh noes! Is this the part where you attempt to intimidate me with your larger genitals?

          1. If I’ve told you once I’ve told you a thousand times JW, I’m not going to show you no matter how much you beg and plead me to do so…

    2. The problem with unions is that, even when the law doesn’t favor unions, so often the guy on the other side is arguing in bad faith, or at least halfheartedly. That is, crippling union contracts aren’t really the fault of the union, it’s the fault of management or the relevant government officials failing to actively pursue the best interest of those they allegedly represent (ironically, often the same charge leveled at union leadership in negotiations).

      I disagree with Epstein versus state/local governments never having to negotiate with unions — however, I think it’s incredibly sensible to essentially flip around the union model. Unions, so far as I understand it, often don’t just give a leader free reign to agree to any contract he wants (otherwise, a company might be better off just bribing the negotiator into selling everyone out) — he negotiates the details, but the members have to accept the final product.

      Government officials should still play the counter to the role of union leader and haggle on the details of the contact, but after there is an accord, both the union and the voters should get a chance to reject the deal. If we still get ridiculous perks for unions after that, well, we have no one to blame but ourselves. Granted, once the majority is in a public sector union, there’s nothing left but to abandon the ouroboros.

    3. It’s not necessarily inefficient to get paid more. You’re looking at it from this centralized perspective. Money flows out from the “capitalist”, and is used to produce the maximum amount of goods for the least cost. Then it’s distributed to consumers.

      However, a worker getting paid more maybe be driving up wages attracting more labor. It’s a price signal just like any other. Artificially holding down wages will cause a labor shortage in the desired area. (See Canada’s shortage of medical professionals). Artificially raising wages will attract excess labor to a market where it’s not needed, causing unemployment.

      Also, the individual getting paid more may accumulate that money as capital and start a small business. This isn’t a static process seeking a fixed optima, it’s a dynamic process with a moving optima.

  4. It now takes a minimum of 1 year to get a residential building permit (including simple additions) in my state. Add more time to that (about 6 months) if you are seeking a local zoning variance and/or subdividing. Local zoning variances can be difficult, if not impossible to get. Building permits are rarely denied, but it can be a daunting task to one who is unfamiliar with the process.

    Regarding construction unions…Although my state is not a Right-to Work state, there has been a dramatic increase in the number of non-union commercial contractors. Even the well entrenched Iron Workers union is feeling it. Good news for the manufacturer of those giant inflatable rats.

    1. The net result is that people no longer build their own homes, they hire a building contractor who can do all the paperwork for them (and often have advance permits in a handy subdivision development).

      Who benefits from that? Developers and building contractors.

  5. C’mon baby, eat the rich
    Put the bite on that son of a bitch

  6. Re: “deregulation”, MNG, you can’t isolate instances of the govt not stopping what it clearly was pushing for elsewhere and call it “deregulation”.

    1. Do you deny the govt wanted, and took action to achieve, rising home prices to keep homeowners fat and happy?

    2. Do you deny the govt had initiative after initiative to get the cost of those more expensive homes lower and lower to “help the disadvantaged”?

    3. Do you consider it “deregulation” to let govt backed Fannie and Freddie run while?

    4. Do you consider the corruption of lib Dems like Chris Dodd to be “deregulation”?

    1. I know there was a big noise about deregulation of the very securities and institutions that are at the center of our problem shortly before this mess occurred.

      1. I think that’s a matter of looking at the symptoms and not the cause.

        The derivatives got all fucked up because their pricing was based on these faulty ratings on MBSes. When you seel what is effectively an insurance policy on a low-risk security, you charge much less than you would on a high risk one. That’s what got AIG in the hole.

        Granted converting a security to a new form that is more sensitive to errors in risk calculations should itself indicate higher risk, but everyone trusted the ratings agencies, and they turned out to be hugely wrong.

        The obvious way to fix this is that you have to let people holding the derivatives take their losses, including losing money if a counterparty goes bankrupt and can’t pay out. You have to let the cascades happen to teach investors not to trust ANYONE. i.e. it doesn’t matter if you have “insurance” on a security that is faultily rated, if the insurer goes bankrupt.

        Bailing out AIG simply signaled to investors that it was possible to guarentee investments against any possible loss. All you have to do is insure it, because the government will always come along to bail out your insurer.

        1. Also, the ratings agencies themselves are are mandated and controlled by government regulation. At all levels, government regulation made the fuck-ups worse, not better.

      2. Oh, yeah, the 2002 Sarbanes-Oxley “Public Company Accounting Reform and Investor Protection Act” was a major piece of deregulation . . .

  7. Union labor costs and eminent domain certainly weren’t the cause of our current economic woes.

    General Motors was a victim of circumstance, I suppose.

    1. Er, yeah, and BMW doesn’t have any unions in its factories in Germany.

      1. Because BMW and GM have the exact same business model.

      2. Comparing Germany’s auto unions with the US is pretty damn ridiculous. For one thing, they didn’t negotiate there way into an arrangement forcing the host company to produce 2x the vehicles demanded. They’re also a lot more likely to be engineers than the sweaty UAW proles.

  8. We just went through a deregulation phase…right before this mess…Collective bargaining and eminent domain have been with us for decades…

    1. And false causation rears its ugly head once again.

      It rained just before the last time my wife gave me a beej. Does that mean I’ll get another next time it rains?

      1. I have noticed the same connection between it raining and your wife giving me a beej. Curious 😉

        Seriously though, at least I have the expected time order for causation, wtf does Epstein have going for his thesis?

    2. Collective bargaining and eminent domain have been with us for decades…

      You might look into the concept of the “dead hand”, MNG. Think of union-driven benefits and above-market wages as compounding annually. Sure, for a little while they are tolerable, but year on year . . . .

      1. RCD, you don’t get it. Time only matters when it helps them. That’s why the CRA can’t be the cause of anything (since it was passed in ’77), but Prop 13 (passed in ’78) is the cause of all of CA’s problems.

        As an aside, if being passed in ’77 means the CRA can’t be doing any harm, how can it have been doing any good? It either impacts 2008 or it doesn’t; it can’t not cause harm because it predates 2008, but still help despite predating 2008.

        1. You know, way back joe provided quite a bit of empirical data demolishing the whole CRA thesis. I assumed that’s why I have’nt even seen it on H&R recently…

        2. You know, way back joe provided quite a bit of empirical data demolishing the whole CRA thesis. I assumed that’s why I have’nt even seen it on H&R recently…

          1. The Financial Crisis and the CRA
            …It’s no surprise, then, that as early as 1999, the Federal Reserve Board found that only 29 percent of loans in bank lending programs established especially for CRA compliance purposes could be classified as profitable….

            …As economist Russell Roberts of George Mason University points out, Bank of America reported that nonperforming CRA-eligible loans were a significant drag on its third-quarter 2008 income. Its earnings report states: “We continue to see deterioration in our community reinvestment act portfolio which totals some 7 percent of the residential book. . . . The annualized loss rate from the CRA book was 1.26 percent and represented 29 percent of the residential mortgage net losses.”…

          2. Yes, the CRA Is Toxic
            …Though the feds, again, haven’t collected figures for CRA loans’ performance as a whole, we do have statistics from a few lenders that are troubling indeed. In Cleveland, Third Federal Savings and Loan has a 35 percent delinquency rate on its CRA-mandated “Home Today” loans, versus a 2 percent delinquency rate on its non?Home Today portfolio. Chicago’s Shorebank?the nation’s first community development bank, with largely CRA-related loans on its books?has a 19 percent delinquency and nonaccrual rate for its portfolio of first-mortgage loans for single-family residences. And Bank of America said in 2008 that while its CRA loans constituted 7 percent of its owned residential-mortgage portfolio, they represented 29 percent of that portfolio’s net losses….

          3. Any link between the Gramm?Leach?Bliley Act and the crisis was thoroughly debunked ten minutes after the crisis, but that doesn’t seem to stop you from spouting the nonsense that it had anything to do with the crisis.

    3. In this case “deregulation phase” is code for liberal Democrats getting Fannie Mae and Freddie Mac to throw out their loan standards as the price for insulating their Democrat connected executives from accounting and mismanagement scandals and then adamently proclaiming there was nothing wrong with Fannie and Freddies financial situtation.

      1. I’m not sure MNG wasn’t equating collective bargaining and eminent domain, with both being in the “good” category.

        1. Correct, I’m all for collective bargaining, but I think Kelo was wrongly decided and should be a major concern to liberals (for reasons O’Connor put well in her dissent).

      2. You mean this?

        1. The article above is “Obama’s Chief of Staff Pick a Freddie Mac Alum – Will Media Notice? “

    4. Deregulation reversed direction with W.

  9. Epstein is a smart guy, but this article is a bit funny. Union labor costs and eminent domain certainly weren’t the cause of our current economic woes. Much more at the center of that was deregulation and foolish market activity.

    Are you sure you read the same article? Becasue the one I read said nothing about financial markets. It was pretty much centered on employing smart rules for labor and real estate, ones that don’t overwhelmingly favor the entrenched and overpaid unions and well-connected developers.

  10. We just went through a deregulation phase…right before this mess

    Really? Do tell. What exactly was deregulated?

    1. Well, if you consider regulatory capture to be deregulation, then yes, there’s been quite a bit.

      1. What about the recent removing the caps on Fannie and Freddie? Is that deregulation? The answer for the lefties, I suppose, is whether we get a positive or negative effect.

        If it’s a positive short-term effect, then no, it’s not deregulation. It’s smart rule making by the Anointed Ones, who only set out to help the most unfortunate among us. If it’s a negative long-term effect, then yes, oh GOD yes, that’s deregulation designed to help the rapacious, rich, fat cats.

  11. State and local governments should never, repeat never, be forced to negotiate with local unions.

    Nice little blog youse got here.

    Be a shame if sumpin happened to it.

  12. What exactly was deregulated?

    Yea, I want to hear about the massive drop in the size of the fed legal code, or the massive spending cuts.

    1. Yea, I want to hear about the massive drop in the size of the fed legal code, or the massive spending cuts.

      In the “progressive” lexicon, a “cut” occurs when regulation or spending doesn’t grow as fast as “progressives” want it to.

      1. Sorry, I forgot about that. Forgive me, MNG.

        1. I try to never assign moral blame to the retarded for making mental mistakes.

      2. “Your department was going to get a 3% increase next fiscal year, but now it’s only going to get a 2.8% increase.”

        “You’re slashing our budget!”

    2. Marxists say the same thing: “The reform just didn’t go FAR ENOUGH or it would have worked.”

      The Financial Services Modernization Act of 1999, the Commodity Futures Modernization Act of 2000, etc., were all extolled as pro-market deregulatory alternatives.

      Witnesseth their results and despair ye true believers!

      1. Care to actually explain cause and effect here, MNG, or just call them “deregulation” and that be that?

        1. I doubt he can; most people who blame “deregulation” and “derivatives” have no idea what either one entails.

          1. “We didn’t make those dealing derivatives sufficiently protect themselves from our stupidity w/ CRA, Fannie, and Freddie, hence ‘deregulation’ is to blame”. Kinda like my not forcing you to buy a bullet proof vest before I shoot you means the ultimate responsibility for your death is yours.

            1. Sorry, that should be “your not letting me force you to buy a bullet proof vest” above.

  13. State and local governments should never, repeat never, be forced to negotiate with local unions.

    Nice little blog ya got here.

    Be a shame if somethin’ happened to it.

  14. State and local governments should never, repeat never, be forced to negotiate with local unions.

    Nice little blog you got here …

  15. State and local governments should never, repeat never, be forced to negotiate with local unions.

    Nice little blog you got here …

  16. Dude, you have got to be kidding me that is totally insane!

    RT
    http://www.total-anonymity.at.tc

  17. I can’t read the writing on the robe of the guy riding the wrecking ball. And I’m not sure what the alt text means. But that’s 10x better in every way than 99.9% of all the Friday “Funnies”.

    1. Warren,

      It looks lilke the robe-writing says “Supreme Court.”

  18. “But don’t let entrenched landowners and businesses raise NIMBY politics to a fine art.”

    I guess he means “don’t let rich people manipulate the system to their benefit.” Good advice, but about 200 years too late.

  19. Anyone want to hunt down the hated Glen Beck’s explanation of why those two small buildings survived when Rockefeller Center was built?

    I’ll give you a hint. Back in the bad old days, the richest man in America (Rockefeller), couldn’t force two building owners to sell when he wanted to build Rockefeller Center. Now that progressives have had power to undermine property rights, rich men like Rockefeller can.

    That’s progress.

    1. Yea, back then rich guys were too busy getting fat railroad related deals and such.

      1. Rich guys getting fat of govt largess no longer happens now that The Right People are in charge, right MNG?

      2. Yeah, damn those rich guys, convincing those rubes in the government to hand them over my money. Damn their eyes!

      3. Obviously, the solution is for the government to own everything. That’ll fix it.

      4. Your extreme ignorance is showing.

        It was not-rich people backed by a loan who spent every dime of the loan to bribe Congress into giving them the massive railroad subsidies for the first transcontinental line.

        It was a rich guy who built a zero-subsidies competing transcontinental line.

        Oh, the rich guy’s transcontinental railroad was the only one that didn’t go bankrupt in 1893.

    2. I seem to remember reading about how one of the primary reasons people hated Rockefeller was that he would buy up legislatures and get laws passed that would give him unfair advantages over the competition.

  20. Is that Lemmy on the right in that picture?

    1. Wait, of course it is. Shut the fuck up, Warty.

  21. Look, I am sure that there are alot of good arguments and discussions to be had over this article but for the life of me I cannot get past the fact that the guy in middle of the right hand column of the picture on this page can be no one other than Lemmy.

    1. oops…sorry Warty, comment foul on my part.

  22. There’s a way to fix California in the long term. Adopt the following laws that already exist in other states:

    1) Government officials may not engage in collective bargaining negotiations.
    2) Right-to-work rules allow government employees to choose not to be represented by a union or pay dues.
    3) Government will not, under any circumstances, withhold union dues from employee paychecks.
    4) Government employees may not strike; the government may fire anyone who does, and may not compensate employees or their unions for time spent on strike, ever.
    5) Government employee dispute resolution procedures shall make no provision for union representatives, except as provided for in currently existing contracts until those existing contracts expire.

    The public employee unions will break and wither, ending as a force both within the bureaucracy and (with their dues gone) as a political force in the state.

    How do you adopt this? No way it’ll get through the legislature, but California does have an initiative process. The moment the people of California decide to save their state, it can be saved.

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