Magazine May 4, 2020, Issue

The COVID-19 Plague Considered as a Deregulatory Opportunity

(Fanatic Studio/Gary Waters/Science Photo Library/Getty Images)
It has exposed the weakness of central planning

The ongoing war with the coronavirus has not only exposed the pitfalls of regulation but also provided a rare opportunity to multilaterally disarm in the battle for special-interest favors.

Effective central planning is impossible. No one is capable of appreciating the myriad circumstances that people find themselves in, let alone of keeping up with changes. As Friedrich Hayek put it, the limited information available to regulators “by its nature cannot take direct account of these circumstances of time and place,” and so “the central planner will have to find some way or other in which the decisions depending on them can be left to the ‘man on the spot.’”

The pandemic has exposed the weaknesses of central planning. Take the federal government’s regulatory activity, which included 637 new and economically significant regulatory actions during the years 2009–19. Although regulators are required to explain to the public how they assess costs and benefits, not a single one of the 637 mentions how households and businesses might find adhering to the new regulations especially costly during a pandemic.

Pandemics are not that rare (each year there is about a 4 percent chance of one involving the flu), but I do not blame regulators for failing to anticipate this one. They do, however, deserve blame for failing to yield more autonomy to households and businesses, which are keenly aware of their changing individual situations.

When President Trump signed the new deregulatory Right to Try Act, allowing eligible patients access to investigational drugs (drugs shown to be safe but not yet FDA-approved because of their unknown effectiveness), many commentators scoffed that few patients would receive such drugs who could not already do so by applying to one of the Food and Drug Administration’s special programs. Less than two years later, Right to Try would make it possible to sweep away regulatory delays in developing treatments for COVID-19. The FDA can do a lot more to get out of the way of medical innovation, which could create trillions of dollars of value each year.

When the Obama administration put “net neutrality” price controls on Internet service providers, it never anticipated that the entire country would be simultaneously stuck at home, requiring that various types of Internet traffic be prioritized in ways that the regulation prohibited. Thankfully, net neutrality was overturned in the U.S. not long before the pandemic. European regulators had to beg Netflix to voluntarily cut the quality of the video it delivers to customers in Europe, where net-neutrality rules still apply.

With the massive 2010 Dodd–Frank law, regulators attempted to prevent large banks from putting the entire financial system at risk. But in doing so, they also piled a multitude of restrictions on small banks, which ten years later would (together with large banks) be prevented from serving desperate small-business applicants reeling from coronavirus lockdowns.

Eager to artificially prop up demand for the new — and expensive — “Obamacare” health-insurance plans, federal regulators in 2016 outlawed short-term health-insurance plans lasting more than three months. Several states recently implemented their own prohibitions. Such plans are inexpensive because they allow consumers to forgo various types of coverage (such as that for childbirth or mental health) that they would not need during their brief participation. Regulators confidently asserted that few people would need such plans. Yet less than four years later, tens of millions of people would be thrown out of work, with no guarantee of being back in less than three months.

In 2012, regulators finalized the requirements for health plans (especially taxpayer-subsidized plans) to cover  “benzos” — prescription tranquilizers such as Valium and Xanax. Benzos are the other half of the risky opioid-benzo cocktail, favored by many opioid abusers because they enhance the feelings connected to opioid consumption. Regulators failed to anticipate, or failed to mention, that when you subsidize something, you get more of it. Soon, benzos would be found in almost 10,000 annual drug-overdose fatalities, including those involving heroin and fentanyl. I am unaware of any action by Congress or regulators to overturn the 2012 regulation.

This is not to say that government has no role in helping people make decisions. But this role should emphasize the provision of aggregate information, such as information about health risks and important product attributes. Individuals should then be free to decide by combining that information with their own extensive knowledge of their personal circumstances.

Instead, paternalism has become the norm among regulators, who show little humility about the now-obvious limits of their own knowledge. Take the Obama administration’s regulation of automobile manufacturing. The media have portrayed the regulations as combating climate change, but the Obama administration admitted that greenhouse-gas emissions were not an important part of the calculus. Rather, it asserted that consumers are unable to understand their fuel budgets and how vehicle choice affects those budgets. Paternalism, not environmentalism, was its leading justification for pushing consumers to fuel-efficient cars.

We cannot expect regulators to self-correct. Indeed, they benefit from their myopia, because when new situations arise, we desperate citizens must beg them for relief. But now is an opportunity to slap some restraints on the regulators, so that the rest of us have the freedom to minimize the damage from the virus. The Club for Growth proposes to temporarily “suspend all regulations when doing so reduces costs, assists in economic recovery or increases private sector opportunities in the U.S.”  It would also require that regulators seek public comment before ending the regulatory holiday.

As I have found in my research, special interests have proven to be effective supporters of regulations, with low-income households disproportionately paying the costs. Many of us benefit from a regulation protecting our own industry or occupation but pay far greater costs owing to the thousands of regulations protecting others. Nobody wants to disarm unilaterally in the battle for government favors. But a silver lining to the pandemic is an opportunity for multilateral disarmament, giving us all more liberty, income, and happiness.

This article appears as “The Current Plague Considered as a Deregulatory Opportunity” in the May 4, 2020, print edition of National Review.

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Casey B. Mulligan is a professor of economics at the University of Chicago, and served as the chief economist of the White House Council of Economic Advisers in 2018–19. His book You’re Hired! Untold Successes and Failures of a Populist President, which details conflicts between President Trump and special interests, is forthcoming in July.

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