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Mercatus scholars apply economic analysis to the issues of the day

Regulatory Accumulation Hinders Productivity Growth

by Patrick McLaughlin on October 29, 2014

Governments worldwide have long recognized that new regulations can create benefits, but always at a cost. More than 30 countries in the Organization for Economic Co-operation and Development (OECD) have institutionalized the process of evaluating this tradeoff by assessing new rules' prospective impact — that is, its anticipated costs and benefits — prior to their promulgation. Formal processes for retrospective analysis of specific rules — where a rule's costs and benefits are assessed in hindsight — are much rarer. A third aspect of the regulatory process deserves attention: cumulative impact of regulation.

Over time, as regulations accumulate, an increasing proportion of companies' resources are devoted to compliance. This necessarily diverts resources away from things like the...

No, Uber and Lyft Won't Hurt Consumers

by Adam C. Smith, Stewart Dompe on October 27, 2014

A group of prominent economists recently and universally approved of the new transportation services being provided by Uber and Lyft, noting the benefit to consumers. Though most people are now recognizing the benefits of new, cheap transportation services, some are decrying the dangers of an unregulated market. This particular criticism accuses Uber and Lyft of engaging in a turf war that could hypothetically result in one of the firms replacing traditional cab services with a resulting glut of idling cabs, belching exhaust and clogging the streets.

There’s nothing wrong with a healthy skepticism of the benefits of new goods and services, but musing on potential...

Trick or Treat? Government's Halloween Tax Costume

by Adam J. Hoffer, William F. Shughart II on October 24, 2014

Autumn is now upon us. The leaves are changing, temperatures are falling, football is in full swing, and one of Americans' favorite holidays is just about to arrive on our doorstep. Kids across the country will don costumes and race from home to home in a festive search for sweet rewards on Halloween.

A kind word about their costumes and some candy or cookies are enough to elicit jubilant smiles and infectious excitement as trick-or-treaters eagerly await the loot dropped into their bags. Benefits abound for both the giver and the receiver in our celebration of All Hallows' Eve. But not so fast. Someone call in the fun police.

Consumers are exercising their choice to purchase and give away "unhealthy" snack foods, so something must be done. Politicians, disguising revenue grabs as incentives for improving Americans' diets, are proposing or passing new or higher selective consumption taxes on a lengthening list of calorie-dense items....

How to Print Yourself a New Hand

CNN
by Robert Graboyes on October 24, 2014

Smiling children are using prosthetic hands to open windows through which we can glimpse the future of health care -- a future where outsiders and amateurs innovate along with insiders and professionals. The question is, "Will America lead the way, as it has for a century, or will it fall behind, as it has begun to do?"

My forthcoming Mercatus Center research "Fortress and Frontier in American Health Care" argues that leading requires us to abandon the partisan rancor over health insurance ("Obamacare" vs. "repeal and replace") and focus, instead, on innovating our way to better health.

FDA-approved prosthetic hands cost around $40,000...

Sorry William Dudley, Regulation Itself Is the Culture Killer

by Hester Peirce on October 22, 2014

The Federal Reserve's talking heads have been hard at work over the last week. They have tackled issues ranging from early childhood education, to the Fed's "duty to advance the maximum well-being of all citizens," to regulatory compliance by financial firms. The Fed's musings on topics far outside of its mandate seem odd for an institution that has a lot more thinking to do about-just to throw out a crazy suggestion-monetary policy. But the Fed's regulatory mandate is also large, so its reflections on compliance are worth a closer look.

New York Fed President William Dudley and Fed Governor ...

How to Restart Health Care Reform

by Robert Graboyes on October 20, 2014

Midterm elections are coming, and both parties are lobbing grenades over health care. Despite the furious rhetoric, the two sides are more alike than they realize. Both spent decades pursuing policies that obstruct health care's capacity to save lives, ease suffering and cut costs. The endless vitriol resembles World War I-style trench warfare. The Affordable Care Act moved the battle lines a little in one direction; the midterms that year moved them a little in the opposite direction. With divided government, the 2014 elections will move the lines even less.

But those weary of the trenches can begin improving health care in January 2015 by shifting to a different theater of a different war in a different era. Think Pacific Islands, World War II. Think innovation.

For 70 years, one side asked one question only: "How many Americans have insurance cards?" The other side pushed back feebly, claiming a superior ability to distribute cards...

Why Nebraska's Tax Reform Plan Failed

by Jeremy Horpedahl on October 20, 2014

What would your family do with an extra $3,000 this year? Use the money for college education? Take more vacation? Pay off debt? Based on my research, if state governments eliminated all special privileges in their tax systems and lowered tax rates an equivalent amount, the average family could save thousands of dollars annually – all without any reduction in government services.

In my recent study published through the Mercatus Center at George Mason University, I discuss the principles for a privilege-free tax system that can responsibly bring this scenario to fruition. Most state income, sales and property taxes contain a variety of exemptions, credits and deductions – or special privileges – that you may know as loopholes. Not only are many of these loopholes unfair, in that only certain industries and...

Does Eminent Domain Even Raise Revenue?

by Dean Stansel, Carrie Kerekes on October 17, 2014

Proponents of eminent domain for private development -- i.e., of forcibly taking private property and giving it to another private party -- claim it will generate more revenue for state and local governments. The Supreme Court even based its landmark 2005 case Kelo v. City of New London on this assertion, holding that the alleged economic benefits for communities legally justify these takings as "public use."

The claim that eminent domain leads to higher revenues has largely gone unchallenged. We recently examined the available data, and our study finds virtually no evidence that eminent-domain activity for private development is associated with higher government revenue. To the contrary, we find some evidence that eminent domain is associated with lower growth of government revenue in the future.

In other words,...

Who’s Regulating the Regulators?

by Veronique de Rugy on October 16, 2014

As the Goldman Sachs tapes show, regulators almost always fail. In other cases, they cheat consumers out of choices. Leave it to the market.

Many people simply take it for granted that government regulation achieves its intended ends. National political debates often reflect this: Doe-eyed Democrats position themselves as the forthright champions of the little guy, selflessly tying unscrupulous businessmen to the mighty yoke of the regulatory state. On the other side, smooth, corporate Republicans appeal to our inner entrepreneurs, decrying the lost productivity and forgone trickled-down growth that would torture our nation’s shackled conglomerates under the proposed new round of regulations.

Whether you’re pro-regulation or anti-regulation in America depends more on affiliation than reality. For better or worse, the truth is more insidious; regulators are often captured by the industry they regulate at the expense of everyone else....

License to Invest

by Hester Peirce on October 15, 2014

Last week, the Securities and Exchange Commission's (SEC) Investor Advisory Committee — on which I currently serve — recommended, over my objection, that the SEC change the way it assesses who qualifies as an "accredited investor." Although sensibly challenging the existing approach to accreditation, the committee's approach was too conservative. Instead, the committee should have called for a more fundamental reconsideration of whether existing investment restrictions are consistent with investor protection.

Under existing law, companies can raise funds through public and private offerings. A public offering involves registration of the offering with the SEC and compliance with an ever-expanding list of regulatory requirements. Anyone can buy shares in a public offering. A private offering, by contrast, is subject to a much shorter regulatory checklist, but — with limited exceptions — only accredited investors are able to buy shares.

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