Regulation Is Good. There, We Said It.

Is there a case to be made for regulation as fuel for innovation?


Geoffrey von Zastrow

3 years ago | 5 min read

Regulation is good. There, we said it. Targeted and effective restrictions on commercial activity keep the market’s “animal spirits” in check. This applies to both monopolies and to the average Main Street storefront, alike. If you’ve ever walked through a small town and marveled at the signage, historic street lights, and cobblestone roads you are likely in a vicinity that has gone to great lengths to care for itself and preserve its character.

Unseen, but powerful nonetheless, are the storefront signage requirements, historic preservation strictures, traffic regulations, and peddler’s licensure regimes that govern everything you see — and don’t see — in that town. That’s regulation, and it’s actually a good thing.

These days, people are fed up. The proof of this particular pudding is in the activism that we’ve seen in recent months and years: from oil company catastrophes to certain for-profit universities price gouging students, it is clear that industry needs guardrails at least some of the time.

This is, of course, not always a popular idea. The platitudes about “cutting red tape” are deeply ingrained in popular political discourse — and it’s not just one party. The idea that government regulations overburden society, and in particular businesses, is a largely bi-partisan belief. The truth is, as always, more complicated.

Take this year as an example. The coronavirus induced lockdowns and subsequent mask mandates led to the destruction of entire economies.

At the same time, these restrictions spurred a SARS-CoV2 sanitation and compliance cottage industry. Distilleries switched from booze to sanitizer. Apparel companies added masks to their repertoire. Government-regulated, and the free market found new opportunities to create wealth.

By Michael H. Keller | Source: DomainTools

Let’s take another step back. Antitrust laws are like disclaimers: they’re designed to protect consumers. If you’ve used your iPhone to order socks on recently, then you’re probably within the clutches of monopolistic behavior — which is anticompetitive and, frankly, anti-capitalist.

Now, there are of course methods of organizing an economy other than capitalism. Nevertheless, our focus here is on the liberal western free market system and the role of regulation therein. So now let’s dive a little deeper.

Regulation Makes Our Lives Better

Going back to the small town example: when a store wants to install signage, it has to follow the local ordinance that governs this conduct. In order to make variations or alterations to a public facade, the shop owner will have to first appear before a design review board, which is a panel that determines whether or not your design meets standards/regulations/etc. They decide whether or not you get to proceed.

If you do, then your project moves forward. If not, it’s back to the drawing board (literally). This is, perhaps, regulation with a lowercase r.

The Clean Air Act, could be classified as a regulation with a capital R, because companies must meet certain numeric values assigned to these regulations; in order to meet air quality standards and protect air quality not just in one state or one region, but nationwide.

Other instances of regulation with a capital R are:

These are all regulations that have a predetermined set of numbers that govern them.

The reason we regulate large industry in this country, or any country, is the same reason we panicked when meatpacking plants experienced huge outbreaks in COVID-19 earlier this year: we want to know that what we eat, drink, and breathe is actually safe.

Former President Richard Nixon signed into law the National Environmental Policy Act (1969), the Clean Air Act (1970), and during his term of office directed the establishment of the Environmental Protection Agency (EPA) and the National Oceanic and Atmospheric Administration (NOAA).

So the next time you look at the expiration date on your milk, or take a deep breath (inhale…now exhale…) while hiking your favorite trail, you can thank the boogeyman of regulation for these simple conveniences, and pleasures.

Source: Federal Register dataset, produced by QantGov.

The Consequences of Rolling Back Regulations

We tend to look at regulation as the government restricting the flow of capital that runs through the economy, but at a time when our daily interactions have changed dramatically, moving largely online over the past 10 years, and especially over the course of 2020, we often fail to think about regulation as a means of ensuring the stability of life as we know it.

As big tech companies go largely unregulated, they find themselves in a gray area between media and public utilities, and are uniquely able to influence elections, and spread information — and misinformation — in the U.S. and around the world.

Beyond sowing the seeds of division, a larger question looms, that is, what toll do these social media giants take on our self-esteem? What is the impact they have on our youth, and what will be the consequence on generations to come that are more likely to spend time online than engaging in an actual relationship? All because of an industry that has gone unregulated.

Source: LOUISA BERTMAN — The Atlantic

The allure of potential financial incentives derived from rolling back regulations is often easy to latch onto for industry; however, the long term impact of deregulation often lands squarely in the laps of middle and low-income communities, not the corporations that actually stand to benefit.

This is exemplified in President Donald Trump’s rollbacks of air quality regulations, which have been met my an overwhelming response from state attorneys general challenging the rollbacks in court on the grounds that “If the proposed rule is finalized, harmful tailpipe pollution will spike, accelerating climate change and causing many Americans to suffer significant adverse health effects”.

The same top prosecutors also highlighted the financial implications to the average person, arguing “The rule also would hit Americans’ pocketbooks by requiring increased expenditures on gas, and it would slow innovation in the auto industry.”

This all begs the question, why are our elected officials (in this case President Donald Trump), rolling back regulations that are both detrimental to the health of everyday individuals and their wallet, but to help those who might contribute to their reelection campaign?

The seminal case McCulloch v. Maryland held that the federal government has sovereign power over the states. The court reasoned, in part, that “the power to tax is the power to destroy.”

Conversely, the power to regulate is the power to create. In a world where taxation and regulation are often perceived as burdensome and distasteful, it is perhaps worth noting that some of the greatest advancements in civilization are undertaken during the most trying times.

So next time you hear a complaint about red tape in the abstract, just think back to that charming historic village you strolled through — the one with the creek whistling through town under a clear, bright, blue sky — and remember that the world we see is the way it is not in spite of regulation, but specifically because of it. There’s comfort in that thought. Hopefully, you feel it too.


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Geoffrey von Zastrow







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