Incentives Matter — Regulation Edition

Apropos of Paul’s January series on needed regulatory reforms (examples here and here), John Stossel’s blog has a nice summary of how counterproductive regulations emerge in political process.

Even when regulators mean well – when they worry about safety or whether customers get basic services – regulations are based on the old, familiar ways of doing things, simply because regulators don’t know anything else. That’s great for old, familiar firms – but bad for the innovative startup that wants to try something different. And bad for consumers who might have benefitted.

The late Mancur Olson explained how privilege-seeking interest groups successfully obtain government favors. His path breaking book may be found online here.

Assuming that government exists to maximize prosperity within its jurisdiction, the problem is how to change the incentives of legislators, bureaucrats and regulators so that they are more resistant to privilege seeking. That is a steep hill to climb. Their human capital is invested in the status quo.

Go here to read my explanation of how government overreach reduces prosperity along New Mexico’s border.

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