At Atlantic Annie Lowrey reviews a book that adds a new culprit to the list of factors reducing growth and increasing income inequality which already includes trade policy, automation, globalization, immigration, and education—regulatory capture:
In their excellent, slim new book, Brink Lindsey and Steven Teles—the former the director of the Open Society Project at the libertarian think tank the Niskanen Center, the latter a political scientist at Johns Hopkins—point to an important and overlooked additional cause. In The Captured Economy: How the Powerful Become Richer, Slow Down Growth, and Increase Inequality, they argue that it is not just that technology and offshoring have wiped away middle-income jobs, but that high-income individuals and big-profit businesses have rewritten the rules of the economy, “capturing†the regulatory system and using it to squeeze out their competition. The result is both greater inequality, and a more sclerotic economy.
What are the consequences of this distortion of the economy?
The result of all this “capture,†they write, is an overpaid white-collar professional class, a bloated financial sector, a lack of affordable housing, the growth of fewer and bigger companies, and a dearth of new startups.
The mechanisms identified by which this operates include zoning, licensing, intellectual property law, and the subsidization of Big Finance. The only key words that I thought were missing in the review were “deadweight loss”.
Anyone who’s ever run a business knows just how true this is and most of these laws and regulations are at the state and local level where they’re nicely ignored.
This review neatly summarizes the things I’ve been writing about here for the last 15 years. If we want a supple, vibrant economy that creates many more new businesses and many more jobs, paving the way for the economy of the future, these are the areas where reform is most needed. The enemies of that future, the beneficiaries of the present system, will fight doggedly to preserve their prerogatives and they hold most of the cards. Not to mention most of the money.
One of the few times I have ever seen anyone acknowledge that for a smallish business, state and local regulations are the ones that are most likely to make life difficult on a daily basis.
Steve
If you’re not in the military or have a family member in the military (most Americans), you’re not a federal employee (most Americans), and you’re not a recipient of federal transfer payments (half of Americans), nearly all of the government you encounter on a day to day basis is state or local government.
90% of the tariff on building the interstates came from the federal government but maintaining them is the responsibility of the states. There’s a lot more maintenance than new construction. Sales taxes, excise taxes—mostly state and local. Schools, fire, policy, etc.—all local. The list is practically endless.