Economics Questions

Re: Regulation Can Work?

geniusiknowit — Sat, 12 Feb 2011 05:16:48 GMT

It would be great to have some charts that show the opportunity costs incurred by these mandates.

Re: Regulation Can Work?

EmperorNero — Fri, 11 Feb 2011 21:00:35 GMT

Esuric:
This isn't the "Austrian argument;" it's basic economic theory. You can't understand the implications of such a regulation without first understanding the concept of opportunity costs.

That's what I meant in the other thread by saying that ignorance of how market pricing works poisons everything. People support some regulation for x, and then x goes up. Aha! Obviously regulation makes us better off. Just look at this statistic saying that x went up after the regulation was passed. Ergo regulation is good, it makes us richer. But they make no mention of the opportunity cost of creating all that extra x. As if it came out of a void and all we had to do was decide we wanted it enough.

Re: Regulation Can Work?

Esuric — Fri, 11 Feb 2011 19:57:22 GMT

I'm mostly familiar with the Austrian argument, I think.

This isn't the "Austrian argument;" it's basic economic theory. You can't understand the implications of such a regulation without first understanding the concept of opportunity costs.

Re: Regulation Can Work?

xahrx — Fri, 11 Feb 2011 19:25:36 GMT

"The article here presents what appears to be evidence that federal regulations can directly lead to better products. Given as examples are the energy efficiencies for refrigerators and automobiles."

"I did read the Tucker article. That's how I came across this other one.

This article shows what appears to be a causal relationship between specific regulatory acts and increased energy efficiency of two common products. Is the regulation not the cause of these improvements, or did these improvements in efficiency cost consumers in some other way (e.g. less safe products)?"

It came at the expense of something, there's no way to know what. On the free market people make the choices they make with an eye towards their means and the options available to them. If energy efficiency was truly their top priority, why wasn't anyone delivering on that issue? Either the manufacturers on the market were for some reason successfully conspiring to keep energy usage high, or no one really gave a damn enough for it to be such a high priority.

Re: Regulation Can Work?

DD5 — Fri, 11 Feb 2011 19:00:08 GMT

geniusiknowit:
It goes on to quote Hayek, "Any attempt to control prices or quantities of particular commodities deprives competition of its power … [but] this is not necessarily true, however, of measures merely restricting the allowed methods of production, so long as these restriction affect all potential producers equally…. Though all such controls of the methods of production impose extra costs … they may be well worth while."

Obviously, the above quote from "Road To Serfdom" is pure statist nonsense from start to finish. You'll find other similar statist quotes in that book and also in Hayek's other writings.

Re: Regulation Can Work?

Caley McKibbin — Fri, 11 Feb 2011 18:53:45 GMT

No such thing as a measure that affects everyone equally.

Re: Regulation Can Work?

cporter — Fri, 11 Feb 2011 18:33:35 GMT

geniusiknowit:
I understand how regulation can cause prices to go up. But is there evidence to support that this is what happened with refrigerators and cars as a result of these specific mandates? Or is this a case of, "Our theory says this is bad, but we have no proof of this to be the case here."

Based on this statement I'm not sure you have a thorough understanding of Austrian methodology. I'm sure others who have been around here far longer than I can quickly produce links to the best articles to explain it.

Anyway, there is nothing about the Austrian position that says all regulation must cause prices to increase. What it would say is that each additional cost to the producer (in this case, the additional cost of compliance) carries an opportunity cost. This may manifest as additional price to the consumer, or as fewer options on the product, or layoffs/wage cuts for producer-side labor efficiency increases, or buying cheaper materials from a Chinese supplier instead of the current American one, or a reduction in sales, or any number of other things. This opportunity cost will ripple outward in the market and change the overall conditions from what they otherwise would have been because it overrides the free consumer's pricing valuation of features.

So in effect the supporters of regulation are saying this: We know what is best and are going to use the state to enforce our preferences for this product's features.

Re: Regulation Can Work?

geniusiknowit — Fri, 11 Feb 2011 17:47:17 GMT

The Tucker article only addressed efficiency as it applied to the auto-defrost feature.

I understand how regulation can cause prices to go up. But is there evidence to support that this is what happened with refrigerators and cars as a result of these specific mandates? Or is this a case of, "Our theory says this is bad, but we have no proof of this to be the case here."

I'm mostly familiar with the Austrian argument, I think. What I'm saying is that here is an article that says, "Regulation can be done right... and here are the numbers to back it up." And it quotes Hayek, to boot.

Re: Regulation Can Work?

krazy kaju — Fri, 11 Feb 2011 17:22:26 GMT

It's not "conjecture only," it's economic fact. If the government did indeed cause some kind of increase in energy efficiency, the resources to do so had to be diverted from other production processes which would have better served individuals.

As for the Tucker article, it absolutely explodes the myth of regulations improving energy efficiency in refridgerators. I wouldn't be surprised if the same held true in other cases of government improving "energy efficiency."

Re: Regulation Can Work?

EmperorNero — Fri, 11 Feb 2011 17:21:15 GMT

Sure, regulation can lead to better products. If the government mandated that all cars should have gold-plated leather seats, then all cars would have gold-plated leather seats and therefore be better. But it wouldn't be a free improvement, obviously we pay the price for it. As such regulation merely bans us from buying more affordable products. Maybe people rather want goods to be affordable than to be better. The market delivers what people want to buy, regulation forces us to buy something we don't want. And that's supposed to make us richer.

Re: Regulation Can Work?

Isaac "Izzy" Marmolejo — Fri, 11 Feb 2011 17:21:03 GMT

i think if one believes that regulation can improve products, one fails to achieve a very basic requirment in becoming an economist, and that is "to think like an economist." you must not only see what is obvious about a specific policy but you must be able to look at the unseen effects as well...

Re: Regulation Can Work?

Prateek Sanjay — Fri, 11 Feb 2011 17:19:15 GMT

Depends on what kind of regulation. If we are talking about regulating central banks, by asking them for the same standards of transparency, corporate governance, auditing, and public accountability that corporations have to receive, why not? A little less troubling secrecy left with central banks.

If we are talking about regulating police behaviour, and having citizen's law review boards that monitor, evaluate, and repeal harmful police abuses against civilians, why not have that regulation as well?

If we are talking about regulating defense transactions between governments, under which weapon sales from one country to another can not be done without compliance to a long list of conditions that ensure that the least harmful weapons get sold and transported, why not?

One can also favour a little regulation of Consumer Protection Agencies, by having them stand in front of legislature-appointed committee and defend every activist decision they took throughout the year. Again, why not?

Regulation might be a wonderful thing in many cases.

Re: Regulation Can Work?

geniusiknowit — Fri, 11 Feb 2011 17:14:25 GMT

Is this conjecture only, or is there some evidence that a trade-off was indeed made in these specific cases?

Re: Regulation Can Work?

geniusiknowit — Fri, 11 Feb 2011 17:12:32 GMT

I did read the Tucker article. That's how I came across this other one.

Re: Regulation Can Work?

Andris Birkmanis — Fri, 11 Feb 2011 17:10:56 GMT

Even if we believe the premise that the regulation caused appliances to consume less energy (there is evidence against this), was this good for the society? By not demanding energy-saving products, consumers demonstrated that they cared more about other factors - price, weight, reliability, or maybe even less usage of certain materials during manufacturing. Forcing improvements in one factor made all these people worse off.