Regulations Solve Problems

by Stuart Shapiro

When I teach regulation (and economics) one of the points I emphasize is that regulation should solve a “market failure,” something the market can’t fix on its own.  The American Action Forum produced the above chart showing the purpose of regulations issued over the past decade.  Matt Yglesias argues that the chart shows that regulation is doing what it is supposed to:

The world is full of dumb regulations of private economic activity, but as far as recent federal regulatory action is concerned I find this very reassuring. The control of environmental externalities is the quintessential vital purpose of regulation. In particular, given the physics of energy production an unregulated market will massively overproduce air pollution related to the combustion of fossil fuels. Obviously there is a cost of complying with regulations that aim at preventing this outcome (if it were cost-free to comply there’d be no need to make people comply) but that’s simply the flipside of the cost of having your air and water polluted. Obviously if the fumes from coal plants were piped directly into the homes of shareholders in utility companies there wouldn’t be any coal-fired power plants in America. The viability of the business depends entirely on the owners of the plants’ ability to offload the air pollution onto the general public. Giving polluters zero ability to pollute would be immiserating, but given them infinite license to pollute would be absurd.

Some of the energy efficiency standards may not fall in this category but some certainly do, as do the environmental regulation.  As always, whenever folks complain about the costs of regulations, don’t forget the benefits.

By: Stuart Shapiro

Stuart is a professor and the Director of the Public Policy
program at the Bloustein School of Planning and Public Policy at Rutgers
University. He teaches economics and cost-benefit analysis and studies
regulation in the United States at both the federal and state levels.
Prior to coming to Rutgers, Stuart worked for five years at the Office
of Management and Budget in Washington under Presidents Clinton and
George W. Bush.