More Regulation or Less Regulation? That is NOT the Question.

During the 2010 election, a major media outlet presented me with a survey they said was developed by a range of political and policy experts. One of the questions was whether I favored more or less regulation. This is a silly and pointless question. The real issue is not how many regulations you have, but how good they are. Do they do what they are supposed to do?

Healthy competition, which is a fundamental basis for a functioning capitalist economy, requires regulations. Sports provide a good example. How about eliminating the rule against goaltending in basketball? Or the shot clock? (Who remembers the four-corners offense?) What about getting rid of the penalty for pass interference in football? Or limits on the number of players? ("Hey, I have 45 players, why are they limiting me to only using 11 at a time?")

Those are all regulations. But they serve a purpose of creating good competition. Getting rid of them would result in boring or one-sided games. Anarchy, rather than competition.

Going to the regulation of business, you could create one regulation that would completely stifle competition. Here is an example: all laptop computers sold in the United States must be made by Dell. Just one regulation, but suddenly there is no Apple, no Lenovo, no Sony. And how much incentive would Dell have to innovate or cut prices? None. Prices would be high, and there would be little or no innovation, all from just one regulation.

But you could also put in place a series of regulations that would create more competition. For example, US manufacturers complain that foreign manufacturers have a price advantage, which gives them an unfair competitive advantage. So one solution would be to add regulations that say: no laptop computer (or any component in that laptop computer) sold in the US can be made with child labor; no laptop computer sold in the US can be made by a process that results in a discharge of toxic chemicals to the air, water, or ground; and no laptop sold in the US can be made by slave or prison labor. Even though this is three times as many regulations as the previous example, the result would be that US manufacturers could better compete against foreign manufacturers.

Are there stupid regulations that should be eliminated? Yes, of course. Is blindly eliminating any and all regulations a good idea? No. There are fewer things more expensive and inefficient than a sloppy or botched deregulation. The savings-and-loan crisis and the California energy crisis are prime examples.

Most regulations are put in place one or two at a time, to address specific issues, and then they get adjusted as people figure out how to make them work. Deregulation should be done similarly - eliminate one or two regulations at a time that are no longer are effective, and adjust the remaining ones (or maybe eliminate one or two more) as people start to understand the new situation.

The real question is not how many regulations we should have, but rather how good they are. Quality, not quantity, is the right criteria.