Ronald Coase died yesterday. He was a Nobel-Winning economist, and a very bright, useful fellow. In 1997, The Reason Magazine had published an interview with Ronald Coase, in which he spelled out his views on government regulations. Ronald Coase did not oppose government regulations. But, then, very few economists issue a blanket attack on government regulations. There are some strange economists who do.Is this information sufficient to conclude whether government regulations are justified or not? Is this enough proof that the economists who issue a blanket rejection of regulations are prejudiced? Most people would answer in the affirmative, but I have my doubts. How do we know?
Economists are prejudiced if facts do not change their judgment. Facts can imply anything. Perhaps facts do imply that regulations are harmful. Perhaps fact do imply that regulations can be beneficial. If economists claim that regulations are harmful even if they “know better”, they are prejudiced “market fundamentalists”. But, if economists do not issue a blanket attack on regulation even when they are fully convinced that they have never done any real good, they are, again, prejudiced “government fundamentalists”. Perhaps it is true that regulations are not always harmful. But, perhaps regulations are evil to the point that even the economists who are ambivalent in this issue are being, well, dishonest.
Reason: You said you’re not a libertarian. What do you consider your politics to be?
Coase: I really don’t know. I don’t reject any policy without considering what its results are. If someone says there’s going to be regulation, I don’t say that regulation will be bad. Let’s see. What we discover is that most regulation does produce, or has produced in recent times, a worse result. But I wouldn’t like to say that all regulation would have this effect because one can think of circumstances in which it doesn’t.
Reason: Can you give us an example of what you consider to be a good regulation and then an example of what you consider to be a not-so-good regulation?
Coase: This is a very interesting question because one can’t give an answer to it. When I was editor of The Journal of Law and Economics, we published a whole series of studies of regulation and its effects. Almost all the studies–perhaps all the studies–suggested that the results of regulation had been bad, that the prices were higher, that the product was worse adapted to the needs of consumers, than it otherwise would have been. I was not willing to accept the view that all regulation was bound to produce these results. Therefore, what was my explanation for the results we had? I argued that the most probable explanation was that the government now operates on such a massive scale that it had reached the stage of what economists call negative marginal returns. Anything additional it does, it messes up. But that doesn’t mean that if we reduce the size of government considerably, we wouldn’t find then that there were some activities it did well. Until we reduce the size of government, we won’t know what they are.
Reason: What’s an example of bad regulation?
Coase: I can’t remember one that’s good. Regulation of transport, regulation of agriculture– agriculture is a, zoning is z. You know, you go from a to z, they are all bad. There were so many studies, and the result was quite universal: The effects were bad.