This document provides an economic outlook and update from Bruce Yandle. It includes GDP growth forecasts for 2013-2014 from various forecasters ranging from 0.5-2.4%. Charts show historical data on retail sales, housing starts, auto sales, employment and other economic indicators. The document discusses regulatory costs and how incentives change when regulation becomes endogenous, with entrepreneurs focusing more on lobbying than innovation.
Jason J. Fichtner Presentation for Mercatus Center SSDI Panel
Bruce yandle-chc-january
1. • Economic Outlook: An Update
• Bootleggers & Baptists
January 25, 2013
Bruce Yandle
yandle@bellsouth.net
3. This is a year of the Snake, and all
things will be possible. Saving
money and being thrifty should be
your top priorities. Delusion and
deception are common in the year
of the Snake. Stay alert! To gain
the greatest benefits from this year,
you must control spending and use
your talents wisely. If you are
planning to get married or to begin
a business partnership, be sure to
thoroughly investigate the other
person's finances and background
before you legalize the alliance.
4.
GDP Growth Forecasts, 2013 - 2014
Forecaster 2013 2014 Date
Bloomberg 2.1% 2.0% 10/5/12
CBO 0.5 – 1.7 11/9/12
Conf. Board 1.3 1.4 12/12/12
Fed—Chic 2.3 12/3/12
Fed—Phila 2.0 2.7 11/9/12
Ga. State 1.5 2.6 11/14/12
IMF 2.2 2.1 10/./12
Moody’s 2.0 12/10/12
NABE 2.4 10/15/12
Wells Fargo 1.5 2.4 12/21/12
WSJ 2.4 11/5/12
World Bank 2.4 6/./11
13. 0
50
100
150
200
250
300
January 2002
June 2002
November 2002
April 2003
September 2003
February 2004
July 2004
December 2004
May 2005
October 2005
March 2006
August 2006
January 2007
June 2007
November 2007
April 2008
September 2008
February 2009
July 2009
December 2009
May 2010
October 2010
March 2011
Case-Shiller Price Index, 1/2002-9/2012
August 2011
January 2012
June 2012
D.C.
Dallas
Miami
SeaIle
Boston
Detroit
Denver
Atlanta
Chicago
Phoenix
Portland
CharloIe
New
York
Las
Vegas
Cleveland
Los
Angeles
San
Francisco
17. Industry Regulation Index
1.45
1.4
1.35
1.3
1.25
1.2
1.15
1.1
1.05
1
0.95
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Oil
&
Gas
Rail
Paper
Chemical
Industry
Mean
18. Cost???
$ 1.8 trillion annually. Wayne Crews, Tip of the Iceberg, CEI,
September, 2012. ($5,678 per capita. Federal taxes are $4,160
per capita.)
$ 1.7 trillion annually. Nicole Crain and Mark Crain, The
Impact of Regulatory Costs on Small Firms, Small Business
Administration, September 2010. ($5,362 per capita)
$ 576 billion across 10 year period for six major categories.
Sam Batkins and Ike Brannon. Examining the U.S.
Regulatory Budget. Regulation, Winter 2012-2013, 5-6.
($1,826 per capita)
$ 59 billion annually. Susan Dudley and Melinda Warren.
Growth in Regulators’ Budget Slowed by Fiscal Stalemate.
July 2012. ($186 per capita)
19. Something even more
costly happens. When
regulation is endogenous,
incentives change for all private
agents. Instead of spending time
at the margin searching for
superior products and services to
send to the market, entrepreneurs
focus on higher payoff endeavors:
Working the halls of congress.
20. Moral Hazard enters the picture.
Command and control reduces progress
based on income growth and innovation.
21. Enterprise Exits, Fewer than 20 & More than 500 Employees,
<20 1989 - 2010 Title
700000
600000
500000
400000
300000
200000
100000
0
<20 Employees
22. Enterprise Exits, Fewer than 20 & More than 500 Employees,
<20 1989 - 2010 Title >500
700000 600
600000
500
500000
400
400000
300
300000
200
200000
100
100000
0 -
<20 Employees >500 Employees
Source: Office of Advocacy, U.S. Small Business Administration, from data provided by the U.S. Bureau of the Census, Statistics of U.S. Business.
24. U.S. Report Card
Decade Real GDP Real Per Economic
Growth, Capita GDP Freedom of the
Annualized Growth World. U.S. Rank
Last year in
Annualized
decade
1951-1960 3.05% 1.25%
1961-1970 4.40 3.14
1971-1980 3.16 2.11 5
1981-1990 3.32 2.36 3
1991-2000 3.81 2.58 3
2001-2010 1.60 0.66 10 (2009)
2001-2007 2.56 1.59 5
Average, 3.10% 1.89%
1951-2010
Lawrence H. Officer and Samuel H. Williamson
"Annualized Growth Rate and Graphs of Various Historical Economic Series," MeasuringWorth, 2011.
URL: www.measuringworth.com/growth/ Accessed 03/22/12.
28. Theories of Regulation
Help to Explain Political Action
PUBLIC INTEREST. Politicians seek to serve the public interest. They want to make
everyone, taken together, better off. They seek to create new wealth, not to redistribute
existing wealth. Of course, politicians are only human, but they do try to serve the broad
public interest. (Marver Bernstein. Regulating Business by Independent Commission.
1955)
CAPTURE. Politicians try to serve the public interest, but some parts of the public are
more interesting than others. Narrow interest groups capture the politician’s ear, and
even go so far as to write proposed statutes and regulations. Unwittingly, perhaps, the
publicly interested politician becomes captured by a special interest. But which one?
(Gabriel Kolko. 1963. The Triumph of Conservatism.)
SPECIAL INTEREST. Politicians recognize their value in brokering deals. They know
there are many special interest groups who wish to obtain favors, even at the expense of
the broad public interest. The successful politician will balance public and private
interests, while selling his or her services to the highest bidder. Now we know which one.
(George Stigler. 1971. The Economic Theory of Regulation.)
MONEY FOR NOTHING. The market for political favors is not necessarily dominated by
favor seekers. Politicians are a major force in instigating activities that will induce
contribution. They “bait the political hook” with threats of action and await requests to
“do nothing.” Instead of seeing new pages in the Federal Register or new statutes, we
see nothing. (Fred McChesney. 1998. Money for Nothing.)
29. Bootlegger/Baptists connect the Public
Interest theory to the Interest Group
theory, but in a special way. Bootleggers
are eager to obtain politically delivered
restrictions and transfers that
redistribute wealth. Baptists seek similar
goals, but for moral reasons. With the
support of both groups, the politician can
deliver producer and consumer rents in a
single action…, and take pleasure in
trumpeting his action. He is otherwise
handicapped.
30. Bruce
Bueno
de
Mesquita
and
Alastair
Smith
The
Dictator’s
Handbook,
2011
PoliXcians
seek
to
gain
and
hold
power
through
redistribuXon.
RegulaXon
is
among
items
that
can
redistribute
wealth.
Theirs
is
a
theory
of
winning
coaliXons.
Each
party
is
necessary,
but
not
sufficient.
It
takes
both
to
provide
a
criXcal
element
in
the
selectorate
that
keeps
the
poliXcal
deals
in
place.
31. Politician/
Brokers
Interest
Groups
Bootleggers
&
BapXsts
is
a
transmission
theory
Broker first has a knowledge problem.
Then, a justification problem
32. Raising Rivals’ Cost through the Ages
Magna Charta, 1215: One standard width for all cloth
sold in the kingdom.
English Factory Acts, 1833: Minimum age for factory
workers, minimum size for factory rooms.
Fair Labor Standards Act, 1938: Minimum wage and
maximum hours worked for covered workers.
U.S. Fuel Economy Standards, 1977: Fleet standards
to be met for domestically produced vehicles.
33. Owls, of all Things, help Weyerhaeuser
Cash in on Timber
The Wall Street Journal, June 24, 1992, 1-A.
Weyerhaeuser says it has restricted logging on 320,000 acres to
comply with federal and state rules protecting the birds. On the
other hand, logging restrictions to protect the owl have put more
than five million acres of federal timberland in the Pacific
Northwest out of loggers’ reach—and driven lumber prices
through the roof.
Owl-driven profits enabled the company to earn $86.6 million in the
first quarter, up 81% from a year earlier.
34. Cartelizing Industries
Clean Air Act 1970,amended. Differential effects. Stricter new source
standards block entry and enable existing firms to earn rents. Same with
Federal Water Pollution Control Act. Industry executives, environmentalists,
Ralph Nader, and Richard Nixon supported the law.
CPSC Lawnmower standard, 1982. Technology standard that led to demise of
small mower producers.
Tobacco Settlement, 1998. Attorneys general negotiated elimination of
advertising practices, payment of $246 billion, the largest settlement in
history, to states for healthcare and tobacco cessation programs, and
encouraged producers to collude and raise price. Industry is managed by
settlement.
Obamacare, 2011. Eliminated state control of insurance marketers. Increased
potential insurance market by an order of magnitude. Cartelized industry.
35. Bootleggers Subsidizing Baptists
Theodore
Vail,
president
of
American
Telephone
&
Telegraph
Company,
develops
natural
monopoly
concept,
and
mounts
successful
PR
campaign,
leading
to
formaXon
of
naXonal
monopoly
and
ICC
regulaXon
in
1910.
Tobacco
industry
forms
NaXonal
AssociaXon
of
Fire
Marshalls
in
the
1980s
to
publicize
and
lobby
successfully
for
flame
retardant
treatment
of
all
upholstered
furniture,
and
stymie
call
for
safe-‐burn
cigareIes
and
extended
liability.
Teamsters
fund
Sierra
Club
in
2009
to
fight
NAFTA’s
relaxaXon
of
trucking
rules.
Chesapeake
Gas
and
American
Gas
AssociaXon
provide
$26
million
subsidy
to
Sierra
Club
beginning
in
2007
in
an
EPA
struggle
to
eliminate
coal-‐fired
uXliXes.
United
Arab
Emirates
funds
2012
Promised
Land,
an
anX-‐fracking
movie
developed
to
build
support
for
regulaXon
limiXng
use
of
fracking
to
obtain
natural
gas
and
oil
from
deep
shale
deposits.
36. We should call it national capitalism.
N.S.B. Gras, Capitalism—Concepts & History, 1939.
No, it should be called political
capitalism.
Gabriel Kolko, The Triumph of Conservatism, 1963.
We have crony capitalism.
David Stockman, Moyers & Company, March
7, 2012.