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Grading’s got me tied up, and Coyote’s on a roll. Here is his retelling of the now (in)famous life of Julia. Do read the whole thing. And someone please try to defend the “opposing position” if you can even characterize it as such. I am all ears.

By the time Julia called it quits, she still had multiple applications pending.  She hadn’t yet figured out how to create the stormwater runnoff management plan needed for her stormwater permit.  She hadn’t been able to satisfy the state air resources board in permitting her small above-ground fuel tank.  And she was still going back and forth with the state department of water resources for her drinking water sampling and testing plan.

Julia gave up her dream of working outdoors, and spent the rest of her life closeted in a room staring at a computer screen.  It wasn’t what she really wanted to do, but web design not require a license (yet) and she could avoid the hassles involved with having employees.  The public never got its park back, and the campground still sits closed, the facilities falling apart from neglect.  But a few months after Julia gave up, a park agency employee wrote a scathing editorial in the local paper, citing Julia’s failure as a great example of how private enterprise has failed and the need for public agencies to do more.

Julia’s experience is a composite, but is based entirely on my personal, real experiences.  Every tax, registration, report, inspection, and license mentioned is a real one my company has had to obtain at some point in our expansion to new states.  The only difference is in the story of the liquor license, where after my local competitors initially blocked the license I had the wherewithal to fight and eventually get it issued.

The better angel of my nature wants to remind you guys that each and every one of these seemingly ludicrous restrictions, rules, licenses, was crafted by well-meaning folks. That may in fact be true. But I have a lesson for my micro students (who are taking their final tonight). Suppose indeed that each and every one of the rules on licenses to sell eggs, filing forms to declare state withholding, etc. was crafted in good faith, can you use basic economic theory to “prove” that we have “too much” of them? Very simply, when regulators and bureaucrats craft a rule – they at best only have the benefits and costs of their small part of the world in mind when they make their decisions. But you can see from Coyote’s adventures in campground entrepreneurship that each and every rule imposes costs beyond their direct ones – and each and every rule passed interacts with some previous rule oftentimes in very unforeseeable ways. Thus, we are “polluted” with too many rules. Kudos to those of you who can form a “solution” to this problem according to standard textbook theory. Extra kudos to those of you who still want to take a stab at trying to persuade me that the “burden of proof” on the government before passing any ruling ought to be considerably lower than I think it should be.

3 Responses to “Outsourcing: Coyote on the Life of Julia”

  1. chuck martel says:

    Mr. Meyer’s article is fabulous.

    On another topic, Professor Rizzo, the JP Morgan synthetic credit portfolio loss. Aren’t the losses experienced by the bank payments to customers that bought their product, which is essentially insurance? Morgan bankers didn’t put the money in a big pile and set it on fire. And didn’t these payments at least partially offset losses that the banks customers were attempting to hedge? If these products had not been purchased, wouldn’t it have been possible that the $2 billion loss would have been absorbed by the other, as yet unnamed parties? Or that if Morgan had not made these agreements the other unnamed parties would not have engaged at all in the activity whose risk they were trying to hedge? Couldn’t this episode be considered as similar to an insurer suffering losses on a hurricane or plane crash?

  2. cmprostreet says:

    I’d go one step further and point out that it’s worse than textbook pollution- in these situations, the bargaining rights of the non-government actors are at best nonexistent and at worst constantly mutating- it’s impossible to nail down what property rights they still have once a few agencies get involved. This eliminates any possibility of a Coasian solution.

    With Coasian solutions out of the picture, we turn back to a Pigovian tax. However, since Pigovian taxes involve the government taxing the private actors, the tax is implemented backward and benefits the party that imposed the externality in the first place. Pointing this out is fruitless, since Coasian solutions have already been ruled out.

    The final response available to the private actor is exit (including simply refraining from entering in the first place). When people exercise their only option by refraining from entering into new business, the costs are completely “unseen.” The government can simultaneously declare that the regulatory schema had no cost, and also that the private market clearly would not have provided those services anyway (or if it had, would have done so in a profoundly unsafe manner).

    Regulators systematically overestimate the monopoly power of market participants while underestimating the incentives these companies face to not harm their customers. Sometimes I wonder if this is in part due to the outrageous power the regulators themselves wield and the complete lack of incentive for them to use it responsibly.

  3. Brent says:

    “Regulators systematically overestimate the monopoly power of market participants while underestimating the incentives these companies face to not harm their customers.” Cmprostreet, circa May 2012. After reading that wonderful sentence, I realize why some opt for Facebook… It is much easier to follow a thread there than here…

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