If the bad regulations outweigh the good, the solution isn’t to give up on regulation, it’s to cut the bad ones.
It doesn’t make sense to lump together regulations on the acceptable amount of lead in drinking water, regulations on operations of a commercial airline, and regulations on customer data.
It's not just that though. There are good and bad regulations in the sense that the law against murder is good and DMCA 1201 is bad, but there are also compliance costs for any regulation, even good ones.
Economic transactions have a certain amount of surplus. The value of doing something is $100 and the cost of doing it is $20, so we do it and gain $80 worth of surplus.
Compliance costs consume part of the surplus. Maybe it costs $5 more but we gain $10 in positive externalities, so it's worth it from a societal perspective. (But not from the perspective of the parties or we wouldn't need a regulation to get them to do it.)
The problem comes when you start stacking them. $25 is still less than $100. $50 is less than $100. $90 is less than $100. But at $101 people stop participating in the transaction and you lose the whole stack. All the benefits of the transaction, to everyone, including the positive externalities the regulations were intended to provide, are lost.
This is true even if every regulation is individually justifiable. There comes a point when the compliance costs exceed the economic surplus available to cover them. It doesn't matter if the regulations have nothing to do with each other, they can still conspire to destroy the thing they were supposed to be improving.
Thing is there's been a fair bit of growth since my childhood, or even since the widespread adoption of the www. Just compare the sheer amount of crap people have compared to a child of even the 90s. Plenty of slack left for some regulation and changes without even the cost of compliance of 20 years ago - there's so much more money in the system.
If a business is so marginal that it can't cope with a change in interest rates or a new regulation or tax rate then any number of other tiny events would have sunk it anyway.
Note: Not to say I in any way agree with this poorly thought out piece of proposed regulation - it needs a similar response to that given to ACTA.
Well, usually there is. For example, I have a business that should be in a good position to take on its first "real" employees right now. We have the opportunity to take on more work, which would bring in more revenue, which would both boost our profits and create decent paying work for the extra staff. Surely these are all good things from a productivity and economic point of view. But we aren't doing any of that, as a direct result of the time, money and extra risk that would be involved. Obviously an employee has to generate more benefit for the business than it costs to employ them or it's not worth hiring, and that's your "fixed pot of money" in the case of employment regulations.
If a business is so marginal that it can't cope with a change in interest rates or a new regulation or tax rate then any number of other tiny events would have sunk it anyway.
That's true. For a lot of new or very small businesses, one bit of significant bad luck can sink them. Hopefully they will grow beyond that to become more established and robust to minor setbacks, but that takes time and it doesn't just happen automatically. In the meantime, every adverse change in taxes or fees or regulatory overheads really can be a serious problem.
Nobody is saying the amount is fixed over time, but that doesn't make it inexhaustible. At any given point there is a finite amount of overhead it's possible to absorb before you're doing more harm than good. If you think your new regulations are more justifiable than your ancestors' old regulations, nobody is saying you can't repeal the old ones to leave more surplus for the new ones. But if you overload a ship, it sinks.
> Thing is there's been a fair bit of growth since my childhood, or even since the widespread adoption of the www. Just compare the sheer amount of crap people have compared to a child of even the 90s. Plenty of slack left for some regulation and changes without even the cost of compliance of 20 years ago - there's so much more money in the system.
"Progress creates surplus" is not a rule. It very often moves it from one place to another.
For example, the rise of refrigeration and microwave ovens in workplaces made it more attractive to bring lunch from home. That means less business for restaurants and fewer customers to amortize fixed costs like rent, which reduces the allowable regulatory overhead before the restaurant goes out of business.
> If a business is so marginal that it can't cope with a change in interest rates or a new regulation or tax rate then any number of other tiny events would have sunk it anyway.
"Don't worry about marginal costs, marginal businesses would fail anyway" is how you successfully boil the ocean. You destroy the marginal businesses -- which is obviously bad -- but you also push an entirely different set of businesses toward the margin, so that when the next regulation or interest/tax rate hike comes, they also sink when they would previously have been able to survive.
And the entire issue here is that it's cumulative. We started with a business that had $20 in costs and $100 in value. That is nowhere near marginal. One regulation that increases their costs by $5 is easily survivable. But twenty such regulations bankrupts them. You have to weigh your alternatives, you can't have everything at the same time.
If something is not worth doing right maybe it shouldn't be done at all?
You are making the same point, opponents of minimum wage. "But I'll go out of business!!!" If your business is that bad, than maybe you should!
Wages are the price of work as established by the free market. Minimum wage in effect eliminates less competitive workers from the market place, since their added value becomes less than their cost. They are simply replaced by more productive workers or robots. The most vulnerable members of our society are affected the most, being robbed by the dignity and opportunities of a paid job and being relegated instead to live off the government's teat.
Why don't you work for below minimum wage and relate to us what dignity and opportunities it provides.
I worked as a developer and I didn't get any additional dignity from the fact that the job was paid. I got the exactly same dignity when I got same money (and more) for doing nothing.
As for opportunities I don't think there are many in below minimum wage jobs, people tend to describe them as "dead end jobs".
Are you sure? If you didn't have a job (because there weren't enough business good enough to pay minimum wage) but had your basic needs paid for (through basic income) wouldn't you want anything more for yourself? Wouldn't you seek connections and new skills? Probably some people wouldn't, but you?
Are you sure that you owe where you are today only to someone buying lots of your time for a price below reasonable minimum wage?
That first job taught me the value of work, the value of my time, how to get others to give me what I needed in exchange of me giving them what they wanted. Taught me how the world works.
Finally it was a huge motivator to improve - through hard work.
No government-assured income would have been able to give me all that.
[...]
Just because people earn less and have less money, the economic output in goods won't change. Goods will simply become cheaper.
What really matters is WHERE the money is removed from the system because companies/individuals supposedly hoard it, pay low wages, or cost of compliance is high. Because that place/group/country will become poorer compared to the rest of the world or country.
There's many complex interactions when you think about economies at global or nation scale.
To get to the matter at hand:
> Or business will pass the compliance costs to the consumer, thus raising price for all.
Yes. They may need to hire two additional people or change their manufacturing process to a more expensive one to comply with some safety standards and whatnot. The good might become slightly more expensive compared to other goods, and some economic output will be lost. But everyone will have to do that, which gets me to your next point:
> Those breaking the law and not complying will have a competitive advantage.
Criminals always had a competitive advantage. It's the job of law enforcement to make sure this doesn't happen - if that doesn't work you have a bigger problem. This argument is useless.
> as well as those large enough to spread the compliance costs over all their production.
Depends on what the compliance cost is. Need to hire an extra guy to do paper pushing for compliance? This cost (maybe) can be spread. Need to use more expensive materials? Bigger corps won't have more advantages here than they had anyways (buy in bulk etc.)
> Wages are the price of work as established by the free market.
That's the theory and mostly true. The problem is a disparity in bargaining power and stakes at wage negotiations. You need organizations selling that "work" who are at least as powerful as their buyers (read: unions).
A lack of unions can force companies (through no fault of their own) to determine wages by the market price of their produce, instead of raising their prices. An union has the power to negotiate wages across entire industries - thus allowing companies to compete without doing so on the backs of their workers. (Edit: This is essentially a way of arriving at a minimum wage for that industry).
> They are simply replaced by more productive workers or robots.
Again. Maybe they should use robots - if a robot can perform the work for less than what could be considered a livable wage for a human worker, the human worker is best used elsewhere. You just made a good argument that minimum wages could increase economic output.
> The most vulnerable members of our society are affected the most, being robbed by the dignity and opportunities of a paid job and being relegated instead to live off the government's teat.
The dignity of a job that is paid so badly that the government has to indirectly subsidize the industry by giving the worker additional government aid, even though he has a paid job? Another great example that the free market fails at setting fair wages. Industries like that should be forced to increase their prices instead of indirectly being subsidized with tax payer money by having their workers receive government aid. Yes: McDonalds & Co. prices may increase - but you were paying that anyway, indirectly, with taxes.
It won't be lost. It goes toward preventing work related injury, or harm to the customer. It basically prevents manufacturer from dodging social cost his enterprise impairs on workers, customers and people who live nearby. This way it can be and is included in the price and also it's cheaper altogether because it's almost always to prevent then to treat.
Regulation can save everybody's money.
That's the surplus, not the economic output. To know whether that is a net positive you would have to know what would have happened to it in the alternative. The customer might have paid less and then used the money to pay for something important like medicine or education.
But the economic output is separate from that. The issue there isn't that the customer has to pay more, it's that the amount the customer has to pay is now too much and they drop out of the market. Then they don't get the product -- and if the product was something important like medicine or education, that's quite problematic. And the makers of the product also lose that business, which reduces the total amount of surplus that exists to do meritorious things with. And the government loses the tax revenue. That kind of dead weight economic loss is very bad.
Wait, what? That is obviously not what happens. If 100K people lose their jobs, they have less money which means they buy less stuff. But nobody is going to materially change prices as a result of what 100K people do out of 300M. Those 100K people are just screwed.
> Criminals always had a competitive advantage. It's the job of law enforcement to make sure this doesn't happen - if that doesn't work you have a bigger problem.
Law enforcement is never 100% effective. People paying each other under the table is rampant and most of them never get caught.
Every time you impose more burdens on law abiding citizens, you increase the wages of crime.
> Depends on what the compliance cost is. Need to hire an extra guy to do paper pushing for compliance? This cost (maybe) can be spread. Need to use more expensive materials? Bigger corps won't have more advantages here than they had anyways (buy in bulk etc.)
Both of those benefit larger entities. Suppose you sell a unit for $100 and your previous unit cost was $80 but with the more expensive materials it's $90. Then you need to sell 50,000 units to cover a $500,000 fixed cost instead of 25,000 units. But you only sell 40,000 units, so you're out of business. The larger company sells a million units and has no such problem.
> Maybe they should use robots - if a robot can perform the work for less than what could be considered a livable wage for a human worker, the human worker is best used elsewhere. You just made a good argument that minimum wages could increase economic output.
But that's what would happen regardless if the human worker could find another job that pays more than the one being automated. The issue is that the human worker would prefer $5/hour to unemployment, and the employer would prefer a $5/hour employee to automation but prefer automation to an $8/hour employee, so an $8 minimum wage puts the employee on the unemployment line.
> The dignity of a job that is paid so badly that the government has to indirectly subsidize the industry by giving the worker additional government aid, even though he has a paid job? Another great example that the free market fails at setting fair wages.
Which is more undignified, working a job supplemented by government assistance or being unemployed and 100% reliant on government assistance?
Putting people who perform work we can do cheaper with automation on the unemployment line is a side-effect of a good thing. Think of what the first wave of industrialization brought us.
People can now invest time learning skills they're actually needed for, without reducing economic output (and later supplementing it).
> Which is more undignified, working a job supplemented by government assistance or being unemployed and 100% reliant on government assistance?
Honestly? Rather than slaving away at McDonalds working for 7 dollars an hour, effectively kissing the ass of that horrible company, just to receive government aid anyways to get me to the end of the month I'd just not work at all.
At least that way FastFoodChainX can't use me to leech off the government and myself.
Just because you introduce a minimum wage restaurants and junk food chains aren't going to go away. They're gonna get more expensive, sure. But you'll lessen the burden they create on society, as well as raising a class of neglected workers to the point where they can afford to dine at such places themselves.
> Both of those benefit larger entities. Suppose you sell a unit for $100 and your previous unit cost was $80 but with the more expensive materials it's $90.
What's really gonna happen is that it'll now sell for $110. Or probably $115 to cover the advertising for the new "High quality ingredients! Now 95% less poisonous!"
In that case we should be taxing wages and using the money to subsidize automation. That way it's everyone paying for the benefits of automation rather than only those at the very bottom.
> People can now invest time learning skills they're actually needed for, without reducing economic output (and later supplementing it).
But they could already do this without a minimum wage. There is no law against quitting your crappy job so you can learn a new trade.
> Honestly? Rather than slaving away at McDonalds working for 7 dollars an hour, effectively kissing the ass of that horrible company, just to receive government aid anyways to get me to the end of the month I'd just not work at all.
Again, if people actually believed this and unemployment is really better than a crappy job then why don't they quit?
> Just because you introduce a minimum wage restaurants and junk food chains aren't going to go away.
They do at the margin. A restaurant in the heart of New York City is not going to close on account of raising the minimum wage. One in rural Nebraska very well might.
> They're gonna get more expensive, sure.
...which hurts their low income customers. And wasn't the benefit of automation supposed to be lower prices? That doesn't work when you force the automation by prohibiting its competition.
> But you'll lessen the burden they create on society
How does causing them to lose their jobs lessen the burden they create on society?
> What's really gonna happen is that it'll now sell for $110. Or probably $115 to cover the advertising for the new "High quality ingredients! Now 95% less poisonous!"
At which point the higher price causes price-sensitive customers to drop out of the market and the smaller company fails for lack of volume rather than lack of margins. Either way the smaller company is more likely to be destroyed than the larger one.
Speaking from a German perspective there is such a law. They will cut your unemployment benefits if you can't prove you're hunting for a job, or just go around quitting them. Not sure about the states.
We have a minimum wage, but it's not that high (just slightly above the US "minimum wage").
> ...which hurts their low income customers.
Low income customers? We have a minimum wage now remember? If at all it's gonna hurt richer customers who are now a little less rich compared to the rest.
> How does causing them to lose their jobs lessen the burden they create on society?
I was speaking of the burden places like Walmart etc. create because of indirect government subsidies.
> At which point the higher price causes price-sensitive customers to drop out of the market and the smaller company fails for lack of volume rather than lack of margins. Either way the smaller company is more likely to be destroyed than the larger one.
There's a lack of logical connection between those two sentences, probably a third sentence missing in between?
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Livable minimum wages:
The point I seem to fail to bring across is that you're paying the higher prices for goods produced fairly RIGHT NOW. You're just not paying them at the counter, you're paying them with your taxes. They're unfair subsidies to companies who pay dumpster wages - rewards for treating their workers like shit.
These forms of subsidies are arguably even less "free market" than the alternative.
Then doesn't the same thing happen to the person who loses their job to a minimum wage increase? You can't spend all day learning a new trade if you have to spend all day chasing jobs you're not qualified to do yet.
It seems like your quarrel is with the unemployment rules, e.g. maybe they should be replaced with a UBI.
> Low income customers? We have a minimum wage now remember? If at all it's gonna hurt richer customers who are now a little less rich compared to the rest.
Your argument is that raising consumer prices hurts rich people more than poor people?
> I was speaking of the burden places like Walmart etc. create because of indirect government subsidies.
I have a hard time faulting a company for hiring people who would otherwise be unemployed. And the subsidies are ostensibly there to help the employees. Who do you expect it to hurt more if we got rid of them, the company or the workers?
> There's a lack of logical connection between those two sentences, probably a third sentence missing in between?
The premise is that regulatory overhead is increasing unit costs. In response a company can do one of two things. If they don't raise prices then they maintain their customer volume but have reduced margins. If they do raise prices then they maintain their margins but suffer reduced customer volume. In both cases they make less money and the smaller company may no longer be making enough to cover their fixed costs.
> The point I seem to fail to bring across is that you're paying the higher prices for goods produced fairly RIGHT NOW. You're just not paying them at the counter, you're paying them with your taxes.
The direct cause of that is social assistance to low income people. It makes no sense to at the same time have a policy of providing assistance to the working poor and prohibit them from working at those wages. At least one of them is wrong.
When the alternative to $5 wages isn't higher wages but higher unemployment, the company paying the $5 wages isn't a drain in society -- it's reducing by $5/hr the amount of social assistance needed to keep those people from starving.
The real source of the problem is that there are people whose labor is not worth a living wage. But minimum wage doesn't change that. If there was someone willing to pay $20/hr then they wouldn't be working for $5/hr. Prohibiting them from working for low wages just makes them unemployed and even more reliant on social assistance.
If you want an actual solution, try policies that reduce the market price of necessities like housing and medicine, so that the wages of unskilled labor are survivable without the need for social assistance.
This equation has two sides, remember? Minimum wages will benefit the poorest people the most by increasing their income, all while increasing prices generally - which everyone pays for. Among the poorest you will see an increase in purchasing power, while everyone else's will be slightly reduced. This isn't hard to grasp, really.
Also, at least in Germany, there has been no statistically significant change to general employment when the minimum wage was introduced. There have however been some marginal price increases as well as reduced employment (< -2% according to some sources) in those sectors affected, which are offset by roughly 5% higher wages in those sectors, as well as increased employment in other sectors. Total employment even increased. That works out to a net positive in my book.
I didn't buy the oppositions arguments when the minimum wage was introduced, and I don't buy their same arguments now that they are against increasing it.
https://www.bmwi.de/Redaktion/DE/Downloads/Diskussionspapier...
The problem is most of the poor don't actually get that bump. None of the people who lose their jobs do, nor anyone who was already unemployed, nor the people whose wages were already just above the new minimum wage. But they all have to pay the higher prices.
> Also, at least in Germany, there has been no statistically significant change to general employment when the minimum wage was introduced.
This is quite unsurprising. The vast majority of people make more than minimum wage so instituting a minimum wage would have little to no effect on their employment. The loss of employment is to the people who had been making less than the new minimum wage.
People are often surprised how few people actually make minimum wage. It's a low single digit percentage of people.
> There have however been some marginal price increases as well as reduced employment (< -2% according to some sources) in those sectors affected, which are offset by roughly 5% higher wages in those sectors, as well as increased employment in other sectors. Total employment even increased. That works out to a net positive in my book.
This is purporting to show the effects of a minimum wage that only existed for little more than a year when the studies were done. It takes longer than that for some companies to realign their operations with the new costs, e.g. to replace your checkout clerks with machines you have to negotiate with suppliers, evaluate the machines, deploy them, etc. In the meantime you keep the employees and eat the higher cost, but only temporarily.
This is why evaluating this kind of thing is extremely difficult. It can take a decade or more to fully shake out, but the number of confounders that can appear in that time frame make it difficult to distinguish the effects of the minimum wage from everything else that happens in the economy. That's why the issue remains contentious.
More annoyingly, studies in different economies are not comparable. To see why, imagine the effects of a $5000/hour minimum wage. Obviously an unemployment disaster. Meanwhile a $0.05/hour minimum wage would cause approximately no unemployment, but also yield no other benefits.
The amount of unemployment caused by a given minimum wage is determined by dynamic characteristics of the economy. The same minimum wage will cause different amounts of unemployment in Pennsylvania than California etc., or different amounts in 2005 than 2015.
It's all too easy to screw it up and end up on the wrong side of the equation. And even when it's "working" you're still severely screwing over a small percentage of the working poor in exchange for a very modest wage increase for the remainder.
Some regulations/laws increase efficiciency by reducing complexity or risk and therefore reduce cost as well.
Your logic is built on the assumption that without regulation there would be no need to agree on the things that we regulate.
But the alternative may in fact be endless piecemeal negotiation, duplication of work, great uncertainty, high hedging and legal costs and a lack of transparency that makes markets inefficient for long periods of time.
It's very difficult to get regulation right though. So I too think that erring on the side of less regulation is generally a good idea.
There are plenty of cases where regulation benefits all of the involved parties. My favorite example is safety equipment for race cars. Absent regulation, there’s huge pressure to not have any because it increases weight and slows you down. But if you regulate it so everyone has to have it, you stop that dangerous incentive and everyone is better off.
And of course the classic theoretical framework for this is the prisoners’ dilemma. Forcing the prisoners to cooperate makes them both better off, but they won’t do that on their own.
Let's take three unrelated regulations. Factories can't pollute the environment, vehicles have to undergo crash testing, and buildings above a certain height are not allowed in a particular area.
Now we look at a local newspaper. It has to buy newsprint from a factory, the factory's costs have gone up due to environmental regulations, so the price of newsprint goes up. Then it has to deliver the print edition to readers, the safety standards cause vehicles to be more expensive, which raises its delivery costs. Then its rent is higher because the zoning regulation prevents the construction of more commercial rental properties.
The local newspaper is struggling to survive as it is. It can survive any two of these regulations but the combination of all three puts it out of business. (And having too many newspapers go out of business may put the newsprint factory out of business etc.)
So we need to prioritize. Environmental regulations and vehicle safety are pretty important, so we should have those and not the zoning regulations.
> There are plenty of cases where regulation benefits all of the involved parties.
You're talking about the consequences of the regulation, not the compliance costs. Even if everyone is better off -- even if the regulation is worth having -- it still required everyone to spend some amount of resources on lawyers and safety equipment and so on. You can only do that finitely many times before you exhaust your available resources.
Which means the regulations we have should be only the ones that yield major returns.
Consider the vehicle safety regulations, for example. If they’re good, then the lives saved and injuries avoided outweigh the costs. The newspaper benefits from this by paying for fewer medical and funeral bills for on-the-job crashes, and that savings will be greater than the added cost to the vehicles.
They're very happy. It's not a "pill" to swallow, it's a tool to squash any small competitor.
Knowledge of who you associated with and what you do when no one you know is watching might not seem dangerous to you now in the western world living through the longest period of peace in Europe since the fall of the Roman empire, but that shit gets people killed. You don't have to look far back. You don't have to look far away either, shit happens today. How many people lost their lives in communist/fascist revolutions over the past century even, if only because "they associated with the enemy"? Can you imagine what the SS could have done with the kind of data that modern ad companies have?
who's "we"?
some people are losing (individuals, small business, startups, entrepreneurs), and some people are gaining (bureaucrats, regulatory bodies, well-established big companies, people willing to sacrifice liberty for security)
The problem of course is that regulators can be heavy handed, sometimes innefficient and make it more difficult for small companies to compete. But that does not mean that regulations are intrinsically bad.
Technical standards on the other hand, are optional. People will adopt them only if the benefits will outweight their drawbacks, thus ensuring that only beneficial technical standards survive.
That little difference (optional vs compulsory) changes everything. Good ideas, when compulsory, are still a dictature, while free choice is what makes a democracy.
Technical standards are not adopted when they interfere with business goals. That's why we have no ubiquitous computing yet, that's why it took regulation to make a standard charging port for phones happen. Regulations are necessary to solve coordination problems on the market - the very problem that's defined by individual voluntary choices leading to bad outcomes for everyone.
That being said, the regulators do tend to have the arrogance of thinking they know better than the consumer. They take non-issues on the market (charging port) and impose crappy solution (micro-usb) while the eventual better solution (usb-c) is still much worse than some of the offers on the market (Apple's lightning port).
With thinking like that we would end up with zero innovation or competition on the OS platform just to solve the "coordination problems on the market". Because who needs Mac OS or Linux, right?! Windows should've been good enough for anyone! Of course, that is why big-cos like Microsoft love that kind of regulatory thinking.
That has demonstrably not been the case in practice. Proprietary hardware components, legally encumbered "standards" and protocols, software licensing restrictions, and locking up user data are all examples of barriers to competition that are clearly bad for the market and yet have been widely and successfully employed. Typically it has required significant legal/regulatory changes to bring those barriers down, and in some cases we still haven't.
(The author is a noted libertarian, so it's good to see him publishing a paper that shows the opposite result to what he'd expect)
Maybe it's time? That implies that this propaganda about regulations and regulators and this question haven't been talking points for the right and for libertarians for decades, and on HN probably for as long as it's existed. The current U.S. president and GOP go on and on about it ceaselessly. Maybe it's time to ask if proprietary software is more secure than open source, or if Microsoft or Google are monopolists, or if the iPhone will ever take off.
Or, 'maybe it's time' to add some value to the conversation rather than yet more rhetoric.
There is also such thing as inalienable rights: the ability to sell yourself into slavery probably should be banned, even though libertarian agents seemingly should know the value of their own freedom.
But it also seems evident in this regulation that no one is doing that calculus. Everyone is clear on "with this regulation we gain X", but only a small fraction of people seem to be thinking "and then, people will behave in Y way and we lose Z".
With many US regulations, there are public comment periods, and those comments are summarized and published. At least when many regulations pass, people know the potential downsides. Can anyone link to the EU equivalent of this? What has the EU parliament office said about the pros and cons?
Everything has a price and free markets are the only mechanism for determining that price. But regulations overwrite that price with one determined by politics and lobby and populism. This new price is paid by all no matter if we want to or not.
So the question is: is it worth it? I make this kind of cost analysis in my life every day. But is it anybody doing them at the society level? As the costs of regulations add up so does the cost of the product. Can, we, as a society, afford it? Or maybe we are pawning our future to pay for these imposed costs today?