Fences and Regulations

Fences and Regulations

Don’t ever take a fence down until you know why it was put up.”
~ Robert Frost

Be careful what you wish for. Business regulations exist to benefit businesses as well as customers, employees, and public health & safety. Regulations are necessary for a stable economy.

Without regulations, it is likely that entire industries would not exist, and other industries would have far fewer customers. More employees would die simply because they were trying to earn a living. The overall economy would be much smaller. Perhaps the United States economy would look more like the self-sufficiency of the pioneer and Wild West days – for good and for bad – than today’s global economic powerhouse.

However, we are all very much aware that compliance is costly – so much so that deregulation is a popular position for politicians. According to deregulatory rhetoric, all regulations are “anti-business”. This rhetoric is wrong, and deregulation for its own sake is misguided. Regulations provide a stable business environment, complete with enhancing consumer confidence.

And yet, regulations are costly, so the anti-regulatory movement continues. While it is true that deregulation for its own sake is misguided, it is also true that regulation for its own sake is misguided. Are regulations placing too much of a burden on businesses and the economy? Probably, at least in certain areas, but given the benefits which regulations provide to businesses, the answer isn’t as clear-cut as the rhetoric would lead you to believe. Are some regulations misguided or at least outdated? I’m sure that the answer is “yes.” Are there redundancies and other inefficiencies in our system of regulation? The answer to that one is also “yes.”

Here is where the analogy of fences comes into the discussion.

Keep in mind that existing regulations were created for specific reasons. Each regulation has a history, and a reason to exist. Perhaps that reason no longer applies; perhaps that reason wasn’t a good reason in the first place. Remember, though, that businesses rely on regulations for customers, employees and a stable economic environment – whether or not these businesses are aware of the benefits of regulations.

The point that I am trying to make is this: When we eliminate specific regulations for the sole purpose of having fewer regulations – with no regard for the purpose that each regulation was created in the first place – we get results that could be disastrous.

Deregulation as a policy does not have a very good track record. Financial meltdowns, deep recessions, wage stagnation and other problems have been associated with deregulation. The reason for this can be seen in the fences analogy. We are told it isn’t wise to tear down fences unless we know why they were put up in the first place. In the same way, we shouldn’t eliminate regulations until we understand why they exist in the first place. Each regulation was put into place for its own reason. Whether or not that reason currently is valid can only be determined by weighing each regulation on its own merits. What are the effects, good and bad, of having a specific regulation in place? What would be the effects of eliminating that specific regulation?

Yes, regulations are costly. Yes, regulations can be misguided, outdated or redundant. But at the same time, some regulations are necessary, and eliminating them could have disastrous results.

How, then, to we get rid of “bad” regulations? It’s easy to go along with the political rhetoric, and support deregulation for its own sake, in order to show that we are “pro-business.” That would be the simple (simplistic) way, but it would be misguided. Another way would be to allow businesses and industries to regulate themselves. But that policy also has a poor track record. Just to cite a couple of examples, take a look at the salmonella-from-eggs scare of 2010 or the 2013 West, Texas fertilizer plant explosion.

The right way would be to examine each regulation individually, make a full cost/benefit analysis on each one, and then eliminate the ones that don’t pass the cost/benefit test. But that would be much more difficult. It requires work, and it requires critical thinking.

If only we had a system in place to do this for us…

Many people don’t realize this, but such a system already exists. The United States Government Accountability Office (or GAO, formerly the General Accounting Office, established in 1921) works with various agencies to investigate, to report on, and to make suggestions for eliminating waste and duplications in federal government rules and procedures.

The GAO is an arm of Congress, and as such is part of the legislative branch of government. Perhaps the GAO could be doing a better job in eliminating wasteful regulations. Perhaps Congress could clarify the mission of the GAO in order to put more emphasis on the regulatory aspect of its work. The point is that we have a system in place. We do not need to tear down fences without knowing why they were put up in the first place.

“In the matter of reforming things, as distinct from deforming them, there is one plain and simple principle; a principle which will probably be called a paradox. There exists in such a case a certain institution or law; let us say, for the sake of simplicity, a fence or gate erected across a road. The more modern type of reformer goes gaily up to it and says, “I don’t see the use of this; let us clear it away.” To which the more intelligent type of reformer will do well to answer: “If you don’t see the use of it, I certainly won’t let you clear it away. Go away and think. Then, when you can come back and tell me that you do see the use of it, I may allow you to destroy it.

“This paradox rests on the most elementary common sense. The gate or fence did not grow there. It was not set up by somnambulists who built it in their sleep. It is highly improbable that it was put there by escaped lunatics who were for some reason loose in the street. Some person had some reason for thinking it would be a good thing for somebody. And until we know what the reason was, we really cannot judge whether the reason was reasonable. It is extremely probable that we have overlooked some whole aspect of the question, if something set up by human beings like ourselves seems to be entirely meaningless and mysterious. There are reformers who get over this difficulty by assuming that all their fathers were fools; but if that be so, we can only say that folly appears to be a hereditary disease. But the truth is that nobody has any business to destroy a social institution until he has really seen it as a historical institution. If he knows how it arose, and what purposes it was supposed to serve, he may really be able to say that they were bad purposes, or that they have since become bad purposes, or that they are purposes which are no longer served. But if he simply stares at the thing as a senseless monstrosity that has somehow sprung up in his path, it is he and not the traditionalist who is suffering from an illusion.”
~ G.K. Chesterton, “The Thing” (1929)


A version of this essay is included as a chapter in the book Common Misconceptions of Economic Policy by Jerry Wyant. You can purchase this book in paperback form from Amazon and other online book distributors. The list price is $12.99 (only $9.99 using discount code TA9GTK7E when ordering, depending on the distribution channel). Or if you prefer, you can download a digital version on your device (Kindle, Nook, etc.) for $4.99.

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Jerry Wyant