John Cochrane on the theory of regulation

 Here is the link to his blog.

JC is on target.

Freedom is waning fast.

Here are some excerpts.

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What's the basic story of economic regulation?

Econ 101 courses repeat the benevolent dictator theory of regulation: There is a "market failure," natural monopoly, externality, or asymmetric information. Benevolent regulators craft optimal restrictions to restore market order. In political life "consumer protection" is often cited, though it doesn't fit that economic structure.

Then "Chicago school" scholars such as George Stigler looked at how regulations actually operated. They found "regulatory capture." Businesses get cozy with regulators, and bit by bit regulations end up largely keeping competition down and prices up to benefit existing businesses.

We are, I think, seeing round three, and an opportunity for a fundamentally new basic view of how regulation operates today.

The latest news item to prod this thought is FCC Commissioner Brendan Carr's scathing dissent on the FCC's decision to cancel $885 million contract to Starlink. Via twitter/X:



Quoting from the dissent itself (my emphasis):

Last year, after Elon Musk acquired Twitter and used it to voice his own political and ideological views without a filter, President Biden gave federal agencies a greenlight to go after him. During a press conference at the White House, President Biden stood at a podium adorned with the official seal of the President of the United States, and expressed his view that Elon Musk “is worth being looked at.”1 When pressed by a reporter to explain how the government would look into Elon Musk, President Biden remarked: “There’s a lot of ways.”2 There certainly are. The Department of Justice, the Federal Aviation Administration, the Federal Trade Commission, the National Labor Relations Board, the U.S. Attorney for the Southern District of New York, and the U.S. Fish and Wildlife Service have all initiated investigations into Elon Musk or his businesses.

Today, the Federal Communications Commission adds itself to the growing list of administrative agencies that are taking action against Elon Musk’s businesses. I am not the first to notice a pattern here. Two months ago, The Wall Street Journal editorial board wrote that “the volume of government investigations into his businesses makes us wonder if the Biden Administration is targeting him for regulatory harassment.”3 After all, the editorial board added, Elon Musk has become “Progressive Enemy No. 1.” Today’s decision certainly fits the Biden Administration’s pattern of regulatory harassment. Indeed, the Commission’s decision today to revoke a 2020 award of $885 million to Elon Musk’s Starlink—an award that Starlink secured after agreeing to provide high-speed Internet service to over 640,000 rural homes and businesses across 35 states—is a decision that cannot be explained by any objective application of law, facts, or policy.

When the Biden administration launches an "all of government" initiative, they mean all of government.

A tweeter queries



Show me the man, and I'll find the crime. Three felonies a day.

In the same vein, I found most interesting in the twitter files and scathing Missouri V. Biden decision the question, just how did the government force tech companies to censor the government's political opponents? "Nice business you have there. It would be a shame if the alphabet soup agencies had to look into it."

This doesn't fit either the econ 101, benevolent nanny, or regulatory capture view. Fundamentally, regulators have captured the industry, not the other way around. They hold arbitrary discretionary power to impose huge costs or just shut down companies. They use this power to elicit political support from the companies. There is a bit of old Chicago school capture in the deal. Companies get protected markets. But the regulators now don't just want a few three martini lunches and a cozy revolving door to "consultant" jobs. They demand, political support. The regulators are more political ideologues than gently corruptible insiders.

Sometimes regulators seem to attack businesses just for fun, like suing a moving company for age discrimination. But maybe here too they are showing everyone what they can do, or scoring some ideological points so people get the message.

The increasing arbitrariness of regulation is part of the process. I find myself nostalgic for the good old days of the Administrative Procedures Act, public comment, cost benefit analysis, and formal rule making. Now regulators just write letters or take legal action, which even if unsuccessful can bankrupt a company. Using administrative courts, the regulators are prosecutor, judge, jury, and executioner all rolled in to one.

Unrelated. $885 million / 640,000 = $1,3825. The federal government apparently thinks it's worthwhile for taxpayers to pay $1,382 to give rural households access to satellite internet. If anyone asked, "would you rather $x in cash or a starlink account?" (which, I think, they also have to pay for) I wonder if x would be much more than $50.