Regulatory capture, again

Over at the League of Ordinary Gentlemen, James K has a great post up about liberals and libertarians learning from each other:

Now, I find the liberaltarian kool-aid tasty, and it mixes brilliantly with the deficit-hawk kool-aid in a way that usually only happens with gin and vermouth.  But the problem with pushes towards moderation like the above is that they’re a hair’s breadth from false compromise fallacies: in order to signal objectivity, they collect the same number of points supporting both sides and suggest that they’re equal.  (None of this post is intended to denigrate James K’s effort: I’m merely pointing out a rather crucial detail that appears to be missing.)

James begins with a trio of things he claims libertarians can learn from liberals: an emphasis on environmentalism (shitting dioxins into someone’s drinking water is a violent act), food safety (selling someone sugar pills as a five-figure homeopathic remedy is fraud), and welfare (with rather less ideological purity, James points out that you’re unlikely to convince people to give up the welfare state without a credible alternative).  I’m going to leave the “welfare” question alone, since we seem to be turning and turning in a widening sovereign debt crisis that’ll solve it for us, and go back to the more ideological questions of environmental and food-safety regulation.

James writes:

That’s not to say a libertarian needs to like any possible [legislative] response to environmental problems, but I think opposition to any form of government environmental protection is misguided.  And there are a lot of market-based approaches to environmental problems.  Pigouvian taxes (such as carbon taxation) use market mechanisms to spread the cost of pollution abatement in the most efficient manner.

And later:

As with the environment, not every piece of consumer protection legislation is going to be acceptable, but some kind of performance-based safety standards, or at least labelling requirements would seem to be entirely appropriate.  Information asymmetry is a real market failure, and there is nothing wrong with admitting it.

And this is all true.  I’m a card-carrying member of the Pigou Club for exactly these reasons.  The problem isn’t that all environmental and consumer-protection legislation is de dicto bad, or that teh ebil librulz are careful only to propose legislation that they know will pick winners and distort incentives and otherwise fuck markets.

The problem is that the process required to produce good environmental and consumer-protection legislation is almost guaranteed to produce no-good, wrong, very bad, cataclysmically awful legislation.  And libertarians are process people.

Environmental laws are needed* because of the enormous power disparity between large-scale polluters and the individuals they affect, and because of the severe information asymmetry involved in aggregated smaller-scale pollution.  This is exactly why environmental laws like CPSIA don’t fix the problems to which they’re addressed, and why environmental regulators like the Minerals Management Service fail to regulate even the most egregious abuses of their targets.

Companies like Mattel and BP are supposed to be regulated by a big, powerful government because they’re too big and powerful themselves for individuals to affect.  Of course, this means that their lobbying efforts are similarly more effective and the regulatory legislation is largely written by its intended targets.

Similarly, the fact that most people involved in aggregate pollution have no idea about the scope or severity of the problem makes it easy for technocratic (or corprate) lobbyists with axes to grind to hijack the legislative process.  This is why we have tax credits for coal-powered cars instead of clean diesels.

It’s not that progressives don’t acknowledge the problem of regulatory capture (although some don’t, or handwave it away as something that’ll disappear “once the right people are in charge”).  Instead I am often confronted with the argument that, yes, the system is flawed, but it’s clear that something must be done, so we’ll do something in a flawed process rather than nothing.  It’s not always obvious to me that doing something in a process that’s been systematically subverted by the people we’re supposed to be “doing something” about is better than doing nothing.

Perhaps a better approach, one more consistent in flavour with the liberaltarian kool-aid, would be to lower the stakes to the point where there’s little for powerful interests to gain by regulatory capture.  This improves the process by reducing the incentives for its subversion.  Of course, it’ll never happen, because everyone involved — the regulators and the corporations — have good reason to prefer the status quo.


* Yes, Coaseian bargaining, I know; let’s just postulate this for the moment since we’re living in the real world rather than an L. Neil Smith novel.


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