The potential costs of re-regulation

Recently, Howard Dean called for sweeping re-regulation of significant portions of the American economy: Dean listed likely targets for what he dubbed as his “re-regulation” campaign: utilities, large media companies and any business that offers stock options. Dean did not rule out “re-regulating” the telecommunications industry, too. Given Dean’s position, it’s worth highlighting the benefits ...

By Daniel W. Drezner, a professor of international politics at the Fletcher School of Law and Diplomacy at Tufts University and co-host of the Space the Nation podcast.

December 8, 2003, 7:45 PM

Recently, Howard Dean called for sweeping re-regulation of significant portions of the American economy:

Dean listed likely targets for what he dubbed as his “re-regulation” campaign: utilities, large media companies and any business that offers stock options. Dean did not rule out “re-regulating” the telecommunications industry, too.

Given Dean’s position, it’s worth highlighting the benefits that deregulation have brought to the U.S. economy. Brad DeLong links to an Economist article (subscription required) and a joint AEI-Brookings book by Alfred Kahn on the subject. The key paragraphs from the Economist story:

Deregulation of the airline industry has been, he says, “a nearly unqualified success, despite the industry’s unusual vulnerability to recessions, acts of terrorism and war.” The benefits to consumers have been estimated at in excess of $20 billion a year, mainly in the form of lower fares and huge increases in the availability of fast one-stop services between hundreds of cities. Consumers do complain that standards of service have fallen. So they have–because passengers are unwilling to pay for them. Through competition, the market has discovered that consumers prefer cheap tickets to frills. Such discoveries are the whole point. American telecoms deregulation is a more complicated tale, but here, too, Mr Kahn draws attention to several large and clear benefits: much cheaper rates for long-distance calling; vastly cheaper cellular and other wireless services; and, in both cases, correspondingly huge increases in usage. Reluctant as consumers may be to believe it, competition is far and away their best friend in economic policy.

This domestic deregulation omits the equally important international deregulation that took place around the same time, as most commodity cartels fell apart. In the case of coffee, for example, the demise of the International Coffee Agreement lowered coffee prices from $1.50 per pound in the mid-eighties to $0.50 per pound in current dollars. Question for Governor Dean — how do your re-regulation proposals not amount to a disguised tax regime that raises barriers to market entry, thus empowering the very corporations you allegedly distrust?

Daniel W. Drezner is a professor of international politics at the Fletcher School of Law and Diplomacy at Tufts University and co-host of the Space the Nation podcast. Twitter: @dandrezner

Tag: Economics