Category: Regulations

Institutional Improvements Can Sometimes Be Designed, Rather than Only Spontaneous

A distinguished school of libertarian and neo-Austrian economic thought argues, following F.A. Hayek, that institutional improvements only arise from spontaneous order, and never from conscious design. There is something to their argument, but the designs of Alvin Roth provide counter-examples.

(p. A13) Mr. Roth’s work has been to discover the most efficient and equitable methods of matching and implement them in the world. He writes with verve and style, describing many market malfunctions–from aboriginal tribes in Australia arranging marriages for children not yet born to judges bending every rule in the book to hire law clerks years before they have graduated from law school–and how we ought to think about them.

Mr. Roth’s approach contrasts with standard debates over free markets versus government regulation. We want markets to be thick, quick, timely and trustworthy, but without careful design markets can become thin, slow, ill-timed and dangerous for the honest. The solution to these problems is unlikely to be regulation legislated from on high. Instead what Mr. Roth practices is nuanced market design created mostly by market participants. Mr. Roth found, for example, that even though the problems in the market for gastroenterologists and law clerks looked the same (hiring started years before schooling ended), the solutions had to be subtly different because of differences in culture, history and norms.

For the full review, see:
ALEX TABARROK. “BOOKSHELF; The Designer of Markets; In some markets, price isn’t the determining factor. You can choose to go to Harvard, but Harvard has to choose to accept you first.” The Wall Street Journal (Tues., JUNE 16, 2015): A13.
(Note: ellipses added.)
(Note: the online version of the review has the date JUNE 15, 2015, and has the title “BOOKSHELF; Matchmaker, Make Me a Market; In some markets, price isn’t the determining factor. You can choose to go to Harvard, but Harvard has to choose to accept you first.”)

The book under review is:
Roth, Alvin E. Who Gets What — and Why: The New Economics of Matchmaking and Market Design. New York: Houghton Mifflin Harcourt Publishing Co., 2015.

Drinking Water Not Harmed by Fracking

(p. A13) Fracking isn’t causing widespread damage to the nation’s drinking water, the Obama administration said in a long-awaited report released Thursday.
The U.S. Environmental Protection Agency–after a four-year study that is the U.S. government’s most comprehensive examination of the issue to date–concluded that hydraulic fracturing, as being carried out by industry and regulated by states, isn’t having “widespread, systemic impacts on drinking water.”

For the full story, see:
RUSSELL GOLD And AMY HARDER. “Fracking’s Harm to Water Not Widespread, EPA Says.” The Wall Street Journal (Fri., June 5, 2015): A5.
(Note: the date of the online version of the story is June 4, 2015, and has the title “Fracking Has Had No ‘Widespread’ Impact on Drinking Water, EPA Finds.”)

Banks Used “Regulatory Arbitrage” to Rent Seek at Taxpayers’ Expense

(p. 21) Between 2009 and 2011, a group of economists at New York University’s Stern School of Business published an influential series of reports and books that sought to explain what, exactly, happened during the financial crisis. The depth of the inquiry was notable because the school is generally thought of as a Wall Street-friendly training ground for future bankers. One of the most striking findings was that between 1980 and 2000, the large banks in America had significantly moved away from productivity ­enhancement and toward rent-­seeking.
For the reports’ principal authors, Matthew Richardson and Viral Acharya, the evidence of this shift came from careful study of the various ways that banks have legally evaded regulation of their capital requirements. A fundamental tenet of bank regulation is that banks shouldn’t borrow too much, because being overleveraged makes them vulnerable to collapse. But banks can most easily make huge profits if they borrow huge amounts, and they tend to pursue unsafe levels of borrowing. Then, the authors observed, they use their power as essential tools in an economy to negotiate bailouts from the government, forcing taxpayers to guarantee their losses. Richardson and Acharya showed that it was precisely because our banking regulations were so extensive and complex that banks were able to seek rents. They called this “regulatory arbitrage,” a term that means banks have harnessed regulation and turned it into a powerful business tool.

For the full commentary, see:
ADAM DAVIDSON. “Wall Street Is Using the Power of Dodd-Frank Against Itself.” The New York Times Magazine (Sun., May 31, 2015): 18 & 20-21.
(Note: ellipsis added.)
(Note: the date of the online version of the commentary is MAY 27, 2015, and has the title “Wall Street Is Using the Power of Dodd-Frank Against Itself.”)

One of the relevant papers by Acharya and Richardson is:
Acharya, Viral V., and Matthew Richardson. “Causes of the Financial Crisis.” Critical Review 21, no. 2-3 (2009): 195-210.

Not Clear If Net Neutrality Is Good for Consumers

(p. B2) Of course, government antitrust and communications policy is supposed to benefit consumers, not any individual company or group of companies. “It’s fair to say Netflix has gotten something of a free pass,” said Scott Hemphill, visiting professor of antitrust and intellectual property at New York University School of Law. “This open Internet principle that’s in ascendance is certainly good for Netflix. It’s harder to say it’s good for consumers.”
. . .
Despite Netflix’s arguments that it shouldn’t have to pay fees to a broadband provider, that proposition is hardly self-evident. The fees Netflix so fiercely opposes are analogous to those found in many industries, such as credit cards, where both consumers and merchants pay the credit card companies. “It’s hard to say if these fees are good or bad for consumers,” Professor Hemphill said.

For the full story, see:
JAMES B. STEWART. “Common Sense; Netflix’s Invisible Hand In Policy and Mergers.” The New York Times (Fri., MAY 29, 2015): B2-B3.
(Note: ellipsis added.)
(Note: the date of the online version of the story is MAY 28, 2015, and has the title “Her Majesty’s Jihadists” which was also the title used on the cover, but not at the start of the actual article on p. 42, which has the title “Common Sense; How Netflix Keeps Finding Itself on the Same Side as Regulators.”)

“Secure in the Knowledge that She Has Other Opportunities”

(p. A11) . . . , Professor Higgins notes that it is Eliza’s “curbstone English that will keep her in the gutter to the end of her days.” He boasts that with a few months under his instruction, she could get a job “as a lady’s maid or a shop’s assistant.”
The next morning, Eliza appears at Professor Higgins’s doorstep to hire him to teach her English because she wants to be “a lady in a flow’r shop, ‘stead of sellin’ at the corner of Tottenham Court Road.” He accepts.
Note the assumptions. Eliza didn’t place her hope in new regulations for street-side flower mongering. For Eliza, upward mobility was about acquiring the skills she needed to get ahead, in this case proper English and the manners that went with it.
. . .
In the end, the only real leverage a worker has over a boss is her ability to tell him where to get off–secure in the knowledge that she has other opportunities. Which is exactly what Eliza Doolittle does at the end, when she’s acquired the English and manners that mean she no longer has to put up with the bullying of Professor Henry Higgins.

For the full commentary, see:
WILLIAM MCGURN. “MAIN STREET; Audrey Hepburn Teaches Economics; Progressives rushing to help New York nail-salon workers should rent a copy of ‘My Fair Lady’.” The Wall Street Journal (Tues., May 26, 2015): A11.
(Note: ellipses added.)
(Note: the online version of the commentary has the date May 25, 2015.)

“Brazen Federal Overreach” Blocks Wine Process Innovation

(p. A13) On May 27, our Napa Valley winery will pull eight cases of Cabernet Sauvignon out of Charleston Harbor in South Carolina. We placed them there six months ago, protected from the elements, following similar experiments in the past two years. The cold water and the tides seem to expedite the aging process, and we believe that our ocean-aged fine wine–which we’ve trademarked as Aquaoir–could revolutionize how vintners around the world think about winemaking. The only obstacle: the federal government.
For more than a year, our winery has been targeted by the Treasury Department, specifically, the Alcohol and Tobacco Tax and Trade Bureau. The agency believes our product is unfit for human consumption, despite an utter lack of evidence, and it has threatened to revoke our winemaking license. Washington doesn’t recognize this wine for what it is: the product of entrepreneurship and experimentation.
. . .
We don’t envision expanding into vast underwater wine-storage development. We simply want to try to understand the ocean-aging effects so that we can try to simulate them on dry land. It would be lamentable if brazen federal overreach blocked the potential for innovation in an industry that could be on the cusp of a true sea change. Only in Washington could you raise a glass to that.

For the full commentary, see:
JIM DYKE JR. “The Wine-Dark Sea of Regulation; We aged wine at the bottom of the ocean–then the feds threatened our license.” The Wall Street Journal (Thurs., May 21, 2015): A13.
(Note: ellipsis added.)
(Note: the date of the online version of the commentary is MAY 20, 2015.)

Science Fiction Creates “False Sense of Conflict between Humans and Machines”

(p. R4) “I think the development of full artificial intelligence could spell the end of the human race,” astrophysicist Stephen Hawking told the BBC. Tesla founder Elon Musk called AI “our biggest existential threat.” Former Microsoft Chief Executive Bill Gates has voiced his agreement.
. . .
Taking part in the discussion [is] . . .; Guruduth S. Banavar, vice president of cognitive computing at IBM’s Thomas J. Watson Research Center; . . .
. . .
WSJ: Does AI pose a threat to humanity?
MR. BANAVAR: Fueled by science-fiction novels and movies, popular treatment of this topic far too often has created a false sense of conflict between humans and machines. “Intelligent machines” tend to be great at tasks that humans are not so good at, such as sifting through vast data. Conversely, machines are pretty bad at things that humans are excellent at, such as common-sense reasoning, asking brilliant questions and thinking out of the box. The combination of human and machine, which we consider the foundation of cognitive computing, is truly revolutionizing how we solve complex problems in every field.
. . .
(p. R5) WSJ: Some experts believe that AI is already taking jobs away from people. Do you agree?
. . .
MR. BANAVAR: From time immemorial, we have built tools to help us do things we can’t do. Each generation of tools has made us rethink the nature and types of jobs. Productivity goes up, professions are redefined, new professions are created and some professions become obsolete. Cognitive systems, which can enhance and scale the capabilities of our minds, have the potential to be even more transformative.
The key question will be how to build institutions to quickly train professionals to exploit cognitive systems as their assistants. Once learned, these skills will make every individual a better professional, and this will set a new bar for the nature of expertise.

For the full interview, see:
TED GREENWALD, interviewer. “Does Artificial Intelligence Pose a Threat?” The Wall Street Journal (Mon., May 11, 2015): R4-R5.
(Note: ellipses, and bracketed word, added; bold in original online version.)
(Note: the online version of the interview has the date May 10, 2015.)

To FDA Aging Is Not a Disease, So FDA Will Not Approve Drugs that Extend Life

(p. D1) Some of the top researchers on aging in the country are trying to get an unusual clinical trial up and running.
. . .
The trial aims to test the drug metformin, a common medication often used to treat Type 2 diabetes, and see if it can delay or prevent other chronic diseases. (The project is being called Targeting/Taming Aging With Metformin, or TAME.) Metformin isn’t necessarily more promising than other drugs that have shown signs of extending life and reducing age-related chronic diseases. But metformin has been widely and safely used for more than 60 years, has very few side effects and is inexpensive.
The scientists say that if TAME is a well-designed, large-scale study, the Food and Drug Administration might be persuaded to consider aging as an indication, or preventable condition, a move that could spur drug makers to target factors that contribute to aging.
. . .
(p. D4) Fighting each major disease of old age separately isn’t winnable, said S. Jay Olshansky, another TAME project planner and a professor at the school of public health at the University of Illinois at Chicago. “We lower the risk of heart disease, somebody lives long enough to get cancer. If we reduce the risk of cancer, somebody lives long enough to get Alzheimer’s disease.”
“We are suggesting that the time has arrived to attack them all by going after the biological process of aging,” Dr. Olshansky said.
Sandy Walsh, an FDA spokeswoman, said the agency’s perspective has long been that “aging” isn’t a disease. “We clearly have approved drugs that treat consequences of aging,” she said. Although the FDA currently is inclined to treat diseases prevalent in older people as separate medical conditions, “if someone in the drug-development industry found something that treated all of these, we might revisit our thinking.”

For the full story, see:
SUMATHI REDDY. “To Grow Old Without Disease.” The Wall Street Journal (Tues., March 17, 2015): D1 & D4.
(Note: ellipses added.)
(Note: the online version of the story has the date March 16, 2015, and has the title “Scientists’ New Goal: Growing Old Without Disease.”)

Incandescents Better than LEDs at Allowing a Good Night’s Sleep

(p. D6) Studies have shown that such light, especially from the blue part of the spectrum, inhibits the body’s production of melatonin, a hormone that helps people fall asleep.
. . .
Devices such as smartphones and tablets are often illuminated by light-emitting diodes, or LEDs, that tend to emit more blue light than incandescent products.

For the full story, see:
KATE GALBRAITH. “WIRED WELL; Can Orange Glasses Help You Sleep Better?” The New York Times (Tues., APRIL 7, 2015): D6.
(Note: ellipsis added.)
(Note: the online version of the story has the title “WIRED WELL; Can Orange Glasses Help You Sleep Better?”)

Creativity Was Permissionless on the Internet Before Obama Made It a Regulated Utility

(p. A15) Critics of President Obama’s “net neutrality” plan call it ObamaCare for the Internet.
That’s unfair to ObamaCare.
Both ObamaCare and “Obamanet” submit huge industries to complex regulations. Their supporters say the new rules had to be passed before anyone could read them. But at least ObamaCare claimed it would solve long-standing problems. Obamanet promises to fix an Internet that isn’t broken.
. . .
Utility regulation was designed to maintain the status quo, and it succeeds. This is why the railroads, Ma Bell and the local water monopoly were never known for innovation. The Internet was different because its technologies, business models and creativity were permissionless.
This week Mr. Obama’s bureaucrats will give him the regulated Internet he demands. Unless Congress or the courts block Obamanet, it will be the end of the Internet as we know it.

For the full commentary, see:
L. GORDON CROVITZ. “INFORMATION AGE; From Internet to Obamanet; BlackBerry and AT&T are already making moves that could exploit new ‘utility’ regulations.” The Wall Street Journal (Mon., Feb. 23, 2015): A15.
(Note: ellipsis added.)
(Note: the online version of the commentary has the date Feb. 22, 2015,)

Remaining Airline Regulations Increase Fares and Reduce Services

(p. 256) Kenneth Button makes the case for “Really Opening Up the American Skies.” “The deregulation of the 1970s, by removing entry quantitative controls, led to a considerable increase in services. It also increased the capability of individuals to access a wider range of destinations from their homes via the hub-and-spoke system of routings that emerged. This pattern has been reversed since 2007. The largest 29 airports in the United States lost 8.8 percent of their scheduled flights between 2007 and 2012, but medium-sized airports lost 26 percent and small airports lost 21.3 percent. . . . In sum, the 1978 Airline Deregulation Act only partially liberalized the U.S. domestic airline market. One important restriction that remains is the lack of domestic competition from foreign carriers. The U.S. air traveler benefited from the country being the first mover in deregulation, and this provided lower fares and consumer-driven service attributes some 15-20 years before they were enjoyed in other markets; the analogous reforms in Europe only fully materialized after 1997. But the world has changed, and so have the demands of consumers and the business models adopted by the airlines. . . . But remaining regulations still limit the amount of competition in the market and, with this, the ability of travelers to enjoy even lower fares and a wider range of services.” Regulation, Spring 2014, pp. 40-45 http://object.cato.org/sites/cato.org/files/serials/files/regulation/2014/4/regulation-v37n1-8.pdf.

Source:
Taylor, Timothy. “Recommendations for Further Reading.” Journal of Economic Perspectives 28, no. 3 (Summer 2014): 249-56.
(Note: ellipses in original.)

The article quoted by Taylor is:
Button, Kenneth. “Really Opening up the American Skies.” Regulation 37, no. 1 (Spring 2014): 40-45.