Less stupid

By Eric Crampton 02/04/2014 5


Scott Sumner lists seven examples of nutty American regulations where the entirety of the thinking class says they’re nuts, the entirety of the political class thinks they’re great, and the media stays out because they can’t get experts disagreeing with each other.

Alex Tabarrok has a post discussing the laws protecting auto dealers from competition. One thing I notice is that when I discuss this sort of crazy law in the faculty dining room, many non-economists will tell me that they have never even heard of the regulation. On the other hand the non-economists do tend to be familiar with other ongoing policy debates, say the minimum wage issue or the Keystone pipeline. Off the top of my head here are a few other examples of nutty regulations that people tend to be unaware of:
1. Federal coastal flood insurance.
2. Zoning laws forcing the construction of parking lots
3. Restrictions on taxi medallions
4. Quotas on sugar imports
5. Huge urban/rural water price differentials
6. Restrictions of the ability of foreign air carriers to serve US markets
7. Occupational licensing restrictions where there is no public policy purpose
There must be 1000s of nutty regulations like the ones cited above. Many people don’t know about these regulations, even well educated people. Why not?
In my view the basic problem is that the regulations are so obviously nutty that you can’t find any respectably pundit to defend them. Who would defend the auto dealer cartel except the auto dealers themselves? (Alex says the NYT does, but let’s assume that was temporary insanity on their part.) Because they are regulations, you might expect support on the left. But as a general rule even people on the left don’t support government regulations that have neither an efficiency nor an equity justification.

I love that New Zealand has relatively little of this. Let’s go through the list:

  1. EQC does not scale premiums by natural hazard risk, so we’re bad on this one too. We should fix it. There’s argument for keeping some subsidy going to the high risk properties so that we avoid the bailout risk of having a bunch of folks priced out of the insurance market, but that’s not an argument for zero risk-adjustment.
  2. We’re bad on this one too. The Greens’ Julie Anne Getner has been doing great work trying to do away with legislative parking minima; hopefully she’ll get some traction on it.
  3. We do not have the same kind of taxi cartel that New York has, but the regs on cab companies remain pretty restrictive. Hopefully Uber will show the way.
  4. Nah, we don’t do that. 
  5. We have something of the opposite problem. While rural irrigators rightly have to go through a consenting process (and while we’d do better to have proper water markets instead), urban consumption is generally not priced. We have water meters, but they’re only checked to see whether you might have a leak on your property. Metered priced urban water would be a useful policy here: make it quasi-neutral by cutting baseline property taxes by the cost of the average household’s water consumption under the price scheme.
  6. Nah, we don’t do that.
  7. Nah, we mostly don’t do that. But it’s an area for continued vigilance
I spent Saturday at the Great Kiwi Beer Festival; I gave a talk with Yeastie Boys’ Stu McKinlay on beer, excise, and regulation. I had a chat afterwards with a couple of folks who’d recently started a craft distillery, and with someone else who was about to. The biggest hassles they were facing in starting up were local consenting issues: hassles similar to the ones that folks starting a new type of food processing plant or an odd restaurant might have to face. Getting a sympathetic landlord for an industrial plant can be tough; local consenting officers can be arbitrary and capricious. But compared to starting up a craft distillery or craft brewery in most other places, we don’t know how lucky we are.


5 Responses to “Less stupid”

  • re 5. Wrong on so many counts. Rural water is generally provided gratis on a first in first served basis. That is in fact a part of the problem in Canterbury.

    Certainly in both Tauranga in Auckland (the two locations I’ve paid water bills in) we are billed on both supply and consumption, similar to power.

    Re occupational licencing – plumbers, builders and electricians. Hard to see a public policy basis for any of these as registered trades.

  • You’re entirely right that rural water is provided “gratis” first-come-first-served in rural Canterbury subject to consenting, and that we’d be better off with a proper water market with prices.

    But think of it this way, Ashton. A farm that has an irrigation consent can’t draw more than its consented amount. The value of the irrigation permit gets built into the price of the land because it trades with the farm when the farm is sold. And so we do kinda have an odd market for water rights currently operating: you have to buy consented land. It’s not nearly as good as tradeable markets with prices, but there are constraints there. You can’t draw more than your consented amount, and you can sell your farm to somebody else if somebody else values the water there more. And, in times of shortage, they can cut back folks’ consents to meet the hydrological constraints.

    Now think about urban water. In Christchurch during the drought a few years ago, they told everybody not to water at night and not to refill their pools. But while neighbours could kinda keep an eye out for and report illegal irrigation, nothing but moral suasion really existed for anything else. The meters hadn’t been checked recently enough to be able to tell whether somebody was still drawing a lot of water during the time of restrictions, or whether the use happened before the restrictions.

  • How accurate should the water meters be? Maybe you could do some checking around local bodies about how they are going to deal with new regulations that demand metered/calibrated meters at the well/river head to each property. Who should pay? Why? Who checks the checkers? Any old meter? Made in China? Supplied over the internet? Any old checker?

    • All good operations questions, Ross. I’d expect that accuracy should depend on the general price of water in the area and the cost of different levels of accuracy: spending $100 to fine-tune accuracy saving $5 worth of water per year would be bad, other way round would be good. I don’t know the relative costs. Similarly for the quality of meter. As for who should pay, I suppose it depends on where we see the property rights as lying. If the status quo were that farmers had the right to draw water and that it’s the public that benefits from being able to meter and restrict it, it should be paid for by Council through rates; if the status quo was that you didn’t have the right to draw, then I’d expect that the drawer should front the costs.

  • agree in part on the farmer’s water Eric. Its neither a market nor free access atm and has led to any number of odd and potentially damaging situations. Certainly public use of water (amenity value) has taken a back seat in the decisions I’ve seen. The Hawkes Bay dam decision will be interesting to see.

    Given that farmers (and other industries) regularly breach the consents they operate under on the perfectly reasonable business understanding that the risk of sanction is low and in the unlikely event of a legal sanction, its cheaper than NOT breaching, the value of any current compliance action by councils is moot. For an example, take a look at the Kawarau pulp and paper mill and the river it uses as a public drain.

    Can’t comment on Christchurch except to note that in all likelihood pools and gardens are the least of the water loss worries the council is dealing with since 2011. Our water is metered and we are billed quarterly. Typically for our three/four person household its around $800 a year for supply and consumption. Its enough that a large number of Auckland properties have rainwater collection systems to avoid the cost of buying metered water for low value activities like washing the car, garden watering, and pools.