Public Choice and the Environment: From the Frying Pan to the Fire Bruce Yandle.
Regulatoryconference Yandle
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21st Century Regulation:Discovering Better Solutions
for Enduring Problems
Why now?
Bruce YandleDistinguished Adjunct Professor of Economics
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Federal Register Pages: 1940-2007
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Federal Register Pages per $Billion Real GDP1940-2007
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Federal Register Pages per $Billion Real GDP1940-2007
The 1970s’ imprint.
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The 1970s
Heydays for major environmental, food, safety, and consumer statutes that called for technology-based, command-and-control regulation
A time when the U.S. economy was characterized by large smokestack industries, young and inexperienced workers, and managements with limited experience in dealing with complex environmental risks
A time when U.S. industry led the world, with significant but still limited international competition in domestic markets
Economic pressures affecting internal growth predicted a “race to the bottom” for U.S. developing regions
Regulation provided opportunities for cartelization while satisfying demand for risk reduction. Centralized, “one suits fits all” regulation was the order of the day
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What’s changed?
In 1970, per capita GDP was $18,391 (2000 chained dollars). In 2007, $38,475.
“Race to the top” has replaced “race to the bottom.”
In 1970, 205 million people in the U.S. Now, 305 million.
In 1970, 11% of the over-25 population had a bachelor’s degree. Now, 28.7%. Better informed, higher valued human capital.
30 years of state and corporate experience in dealing with risk management…and deeply engrained regulatory habits.
Intense, global competition.
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More of us.
Better educated.
Better connected to information.
Wealthier & Older.
Firms competing in global markets.
How does this affect the demand and supply of regulation?
Where are we?
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An Information Revolution Occurred after 1970.
So what?
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MICROSOFT in 1978
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Wikipedia in 2007
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Meet the
Innovators’ Dilemma
Clayton Christensen. The Innovators’ Dilemma. Harvard Business School Press, 1997.
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Source: Michael Cox. Federal Reserve Bank of Dallas
Human ConnectivityHuman Connectivity
CreativityCreativity
Analytical Reasoning
Formulaic Intelligence
Manual Dexterity
Brute Force
Totem of Human Talents
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Let’s talk about where people work!And how that has changed.
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U.S. Sector Employment: 1970
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U.S. Sector Employment: 2007
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Knowledge-Intensive Manufacturing
So what?
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U.S. GDP by Product Group1970-2006
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The Changing Industrial Scene
From 1970s Smokestacks to
21st Century Knowledge Economy
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U.S. Industrial Production Index1919-6/2008
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Production-Based Industry Rankings
1972 1980 1990 2000 2004 2007
Iron/Steel Iron/Steel Printing Comp/Elec Comp/Elec Comp/Elec
Apparel Apparel Apparel Autos Autos Aircraft
Machinery Paper Plast/Rubber Food Food Food
Food Fab. Metal Food Fab. Metal Chemicals Plast/Rubber
Paper Paper Chemicals Machinery Iron/Steel Fab. Metal
Fab. Metal Food Iron/Steel Plast/Rubber Plast/Rubber Elec. Mchry.
Chemicals Chemicals Fab. Metal Chemicals Machinery Printing
Autos Printing Machinery Printing Fab. Metal Chemicals
Printing Autos Plast/Rubber Paper Paper Iron/Steel
Plast/Rubber Plast/Rubber Autos Iron/Steel Printing Nonmetal minerals
Source: Economic Report of the President, 2005, and Federal Reserve Board.
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Are all the jobs going to China?
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Percentage Change in Manufacturing Employment1992-2003
Data for The Netherlands and China for 1990-2002
Source: W.A. Ward, Manufacturing Productivity and the Shifting U.S., China, and Global Job Scenes, 1990-2005. Center for International Trade, Clemson University, Clemson, SC.
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Globalization
So what?
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Growth in Global Markets Changes Rent-seeking Behavior & Places U.S. Regulators in Head-to-Head International Competition
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Racing to the Topbut
Struggling with the Bottom
So what?
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0
Environmental Kuznets Curve: The General Case
Average Income
Ambient Pollution Concentration
Race to the top.
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The same set of countries was examined over the period 1960-1980.
Over the period 1960-1980: emissions increased with income. No evidence of EKC.
Over the period 1984-2002: evidence of EKC.
020
4060
80C
arbo
n D
ioxi
de E
mis
sion
s P
er C
apita
0 20000 40000 60000GDP
co2pc Fitted values
(No evidence of EKC)CO2-GDP Relationship 1960-1980
Source: Kuheli Dutt, doctoral student, Northeastern University, Boston, MA
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010
2030
40C
arbo
n D
ioxi
de E
mis
sion
s
0 10000 20000 30000 40000Gross Domestic Product
CO2pc Fitted values
(Clear evidence of the EKC)CO2-GDP Relationship 1984-2002
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Federal regulatory agencies are mature, experienced, and sophisticated.
States and cities have in place sophisticated regulatory infrastructure.
Huge risk-reduction strides have been made.
The U.S. is generally cleaner and safer. Natural areas are better protected.
We are in a race to the top.
Information and monitoring costs have plummeted.
Interest groups are results oriented.
Industries seek competitiveness and harmonization of standards.
The search is on for more effective, lower cost, outcome-based regulation.
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Today’s PlanThere are many ideas in today’s papers.But, alas, we must ration.Five Key Ideas Use performance-based regulation. Require congressional review of significant regulations with
requirement that offsetting saving be found. Set priorities for regulatory instruments. Least restrictive first. Treat risk from new technologies the same as risk from
existing technologies. Encourage private market alternatives before moving to
regulation.
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Three Panels
Panel One: Procedural changes that facilitate improved outcomes
Panel Two: Solutions that fall outside traditional regulation
Panel Three: A discussion with journalists led by Tyler Cowen
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21st Century Regulation:Discovering Better Solutions
for Enduring Problems
Why now?
Bruce YandleDistinguished Adjunct Professor of Economics