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Growth and regulation

Summary:
Is economic growth inexorably slowing down? Such is the depressing conclusion of Nick Bloom, Chad Jones, John Van Reenen, and Michael Webb, who showed in a very important paper that it is taking more and more effort to find new ideas. It is also the conclusion of Robert Gordon's Rise and Fall of American Growth. They ...

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Is economic growth inexorably slowing down? Such is the depressing conclusion of Nick Bloom, Chad Jones, John Van Reenen, and Michael Webb, who showed in a very important paper that it is taking more and more effort to find new ideas. It is also the conclusion of Robert Gordon's Rise and Fall of American Growth. They promised us flying cars, and all we get tweets. The marshaling of facts in these and related works is impressive and depressing. 

I'm attracted to the other much more hopeful (maybe) possibility: growth, really the continued betterment of the human condition, is possible, but it is just stymied by the ever-increasing web of law and regulation. 

Along today come two interesting posts courtesy Marginal Revolution (always must-read). The first is narrow, on nuclear power, the second much broader on how bad regulation spreads around the world. 

Where's my flying car  by Robin Hanson summarizes Where's my flying car by J. Storrs Hall, and places the blame pretty squarely on over-regulation, of nuclear power in particular, but of all technology in general. We didn't turn to twitter because there were no ideas, but because that was, for a while, the only unregulated area for growth. 

Gordon's central thesis was that our spurt of growth came from mastering fossil fuels -- essentially mastering electromagnetism -- and that's over. 

Growth and regulation


In the 1970s, the centuries-long growth trend in energy (the “Henry Adams curve”) flatlined. Most of the techno-predictions from 50s and 60s SF had assumed, at least implicitly, that it would continue. The failed predictions strongly correlate to dependence on plentiful energy. American investment and innovation in transportation languished; no new developments of comparable impact have succeeded highways and airliners. …

The war on cars was handed off from beatniks to bureaucrats in the 70s. Supersonic flight was banned. Bridge building had peaked in the 1960s. … The nuclear industry found its costs jacked up by an order of magnitude and was essentially frozen in place. Interest and research in nuclear physics languished. … Green fundamentalism has become the unofficial state church of the US (and to an even greater extent Western Europe). …

In technological terms, bottom line is simple: we could very easily have flying cars today. Indeed we could have had them in 1950, but for the Depression and WWII. 

If our pre-1970 energy use trend had continued, we’d now use ~30 times as much energy per person, mostly via nuclear power. Which is enough energy for cheap small flying cars.

I'm not sure how this works. Nuclear does not seem like a promising avenue for powering small aircraft! But the larger point -- nuclear power could easily have allowed our society to continue to use more power, without cost or carbon emissions, is surely true.  

The raw fuel cost of nuclear power is crazy cheap; almost all the cost today is for reactors to convert power, a cost that has been made and kept high via crazy regulation and liability. Like the crazy restrictive regulations that now limit innovation in cars and planes, destroyed the small plane market, and prevented the arrival of flying cars.

Anything that goes into a certificated airplane costs ten times what the thing would otherwise. (As a pilot and airplane owner, I have personal experience of this.) It’s a lot like the high cost of human medical drugs compared with the very same drugs for veterinary use.… Building of airports remains so regulated (not just by the FAA) that only one major new one (KDEN) has been built [since 1990]. …

I commented a while ago on light planes. Flying cars may be a stretch, but a new light plane that is no more complex than a car (Cirrus SR22 for example) costs $500,000. Most light planes even still in production were designed in the 1950s. There's plenty of knowledge evolution -- see the homebuilt market with remarkable planes if you're willing to build it yourself. But not FAA certified. 

I joked a while ago that a visit to a local airport resembles a visit to a Cuban used car lot.  There is no reason at all but regulation that you could not have a light plane that costs $50,000. (The actual Cuban car lot will soon appear in California, if governor Newsom's ban of all sales of new gasoline cars really goes in to effect. "Cuban car lot" got this blog blocked by social media censors a while ago, I will be curious to see if it happens again.) 

It seems virtually certain that if we had had [recent] cultural and regulatory environment … from, say, 1910, the development of universal private automobiles would have been suppressed. … 

With nuclear power, we’d have had far more space activity by now. Without it, most innovation in energy intensive things has gone into energy efficiency, and into smaller ecological footprints. Which has cut growth and prevented many things. 

The crazy regulation that killed nuclear energy is quite unjustified, not only because according to standard estimates nuclear causes far fewer deaths, but also because standard estimates are greatly inflated via wide use of a “linear no threshold model”, regarding which there are great doubts:

The blog post goes on. It is a fact that existing nuclear power has killed far fewer people than fossil fuel power (via air pollution), even including the meltdowns caused by the same Cuban car lot regulation that forces nuclear power to use antiquated unsafe technology designed at the same time as the Cessna 172.  New designs are safer still.  We can debate safety costs, but first let's focus on the benefits -- what if growth could have continued at the pre-1970 level? That's a huge amount of benefit. 

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The world forager elite by Robin Hanson asks the deeper question: why doesn't competition among nations loosen the regulatory stranglehold? This one is valuable for its many examples: 

The US started out with a reasonable property approach to spectrum, but then Hoover broke that on purpose, to create a problem he could solve via nationalization, thereby gaining political power that helped him become U.S. president. Pretty much all other nations then copied this bad US approach, instead of the better prior property approach, and kept doing so for many decades.

The world has mostly copied bad US approaches to over-regulating planes as well. We also see regulatory convergence in topics like human cloning; many had speculated that China would be defy the consensus elsewhere against it, but that turned out not to be true. Public prediction markets on interesting topics seems to be blocked by regulations almost everywhere, and insider trading laws are most everywhere an obstacle to internal corporate markets.

Back in February we saw a dramatic example of world regulatory coordination. Around the world public health authorities were talking about treating this virus like they had treated all the others in the last few decades. But then world elites talked a lot, and suddenly they all agreed that this virus must be treated differently, such as with lockdowns and masks. Most public health authorities quickly caved, and then most of the world adopted the same policies. Contrarian alternatives like variolation, challenge trials, and cheap fast lower-reliability tests have also been rejected everywhere; small experiments have not even been allowed.

(Related, today a nice tweet reminding us that many local building codes prohibit much cheaper and more efficient factory built housing.) 

What stops competition among countries for sensible regulation? 

One possible explanation for all this convergence is that regulators are just following what is obviously the best policy. But if you dig into the details you will quickly see that the usual policies are not at all obviously right. Often, they seem obviously wrong. And having all the regulatory bodies suddenly change at once, even when no new strong evidence appeared, seems especially telling.

Robin speculates that regulation is run by a club of global elites who jump to consensus, 

It seems to me that we instead have a strong world culture of regulators, driven by a stronger world culture of elites. Elites all over the world talk, and then form a consensus, and then authorities everywhere are pressured into following that consensus. Regulators most everywhere are quite reluctant to deviate from what most other regulators are doing; they’ll be blamed far more for failures if they deviate.

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Bryan Caplan asks a similar question -- why do all large companies endorse ultra-progressive wokeism? A Becker student would think a company that allowed their expression could hire moderate or right wing (out of the closet Republican!) employees at lower wages, and outcompete the others. After thoughtfully considering the possibilities, Bryan comes down to 

Explanation #5. Discrimination law covertly stymies the creation of right-wing firms.  Most obviously, any firm that openly and aggressively opposed #MeToo and #BLM would soon be sued into oblivion.

Tentative evaluation: Even more plausible.  Imagine what would happen if a firm’s top brass loudly declared that, “Discrimination simply isn’t a problem here” – and routinely fired complainers for contradicting the party line.  Picture a firm blanketed in propaganda telling workers to “Be color-blind,” “Laugh it off,” and “No one likes a tattle-tale.”  A small business in a conservative area might get away with this for a few years, but a Fortune 500 company that stuck to its right-wing guns would go down in flames.  

I've been watching in horror the spread of the idea that central banks need to use regulatory powers to force banks to de-fund fossil fuels or otherwise push climate-change policies, and now move on to impose inequality and social justice policies. (Like them or not, not the job of central banks via bank regulation.) It seems part of the same interesting phenomenon. 

Strictly legal pressure doesn't apply as easily to global regulatory convergence.  There is more of a desire to be part of the club, what Robin referred to as the " forager system of conflict resolution."

The convergence phenomenon also makes more sense of the cultural and political forces surrounding climate. Many people point out the difficulty of one state or one country adopting climate policies (California banning all gasoline cars by 2035 for example), when China builds a coal fired plant every year. But if a regulatory religion -- good or bad -- can sweep the world's elites, then maybe such efforts are worthwhile. 

If all this adds up, though, it asks the question just why "policy-making" technocratic elite, who have been so wrong about so much for so long remain able to impose such things on the rest of us. Why are they so immune from competition? 

Are we running out of ideas or just constrained by bad regulation to do anything with good ideas? Case not yet closed, I think. Quantifying the damage of regulation is awfully hard. 


John H. Cochrane
In real life I'm a Senior Fellow of the Hoover Institution at Stanford. I was formerly a professor at the University of Chicago Booth School of Business. I'm also an adjunct scholar of the Cato Institute. I'm not really grumpy by the way!

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