Quote of the Day: The Social Costs of Regulations

Rahm’s Rule is a useful accessory to a body of theory that seeks to explain the political economy of regulation. The rule tells us that major crises can provide cover for distributing benefits to targeted special interest groups. The greater the magnitude of a given crisis and the shorter the interval for forming legislation to deal with it, the larger the spread of pork that can be packed into the final legislation. Rahm’s Rule is a guarantee that efforts to resolve a deadline-based crisis will go on to the very last minute. We might keep this in mind for the next deadline-driven crisis.

In today’s economy, regulation is found at every meaningful margin. Politicians set and rearrange prices for important services and products for consumers nationwide. They open and close market entry and give advantage to favored groups by altering taxes, depreciation schedules, and other regulatory schemes. Doing all this in the full light of day and with full and open debate would be a challenge. But then there are crises to serve the politicians’ interests. Some arise spontaneously and some are created or magnified consciously by the politicians themselves. The sequestration element in the fiscal cliff story is an example. The shouts of crisis and the end of western civilization that preceded TARP are another. In all cases, Rahm’s Rule applies: “You never want a serious crisis to go to waste.”

This is from Professor Bruce Yandle at the FEE, discussing the social costs of regulations, as well as, the concentration of benefits from arbitrary regulations that are funneled into political power blocs, which are especially pronounced during the implementation of crisis management measures.

One can't help but suspect that much of the ongoing and past crises may have been engineered or concocted by politicians and their cronies as part of advancing their interests.