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• Economic Outlook: An Update • Bootleggers & Baptists
January 25, 2013
Bruce Yandle
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.
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
GDP Growth Forecasts, 2013 - 2014
What about Retail Sales Employment? Housing?
$140,000
$145,000
$150,000
$155,000
$160,000
$165,000
$170,000
$175,000
$180,000
$185,000 20
07-0
1-01
20
07-0
3-01
20
07-0
5-01
20
07-0
7-01
20
07-0
9-01
20
07-1
1-01
20
08-0
1-01
20
08-0
3-01
20
08-0
5-01
20
08-0
7-01
20
08-0
9-01
20
08-1
1-01
20
09-0
1-01
20
09-0
3-01
20
09-0
5-01
20
09-0
7-01
20
09-0
9-01
20
09-1
1-01
20
10-0
1-01
20
10-0
3-01
20
10-0
5-01
20
10-0
7-01
20
10-0
9-01
20
10-1
1-01
20
11-0
1-01
20
11-0
3-01
20
11-0
5-01
20
11-0
7-01
20
11-0
9-01
20
11-1
1-01
20
12-0
1-01
20
12-0
3-01
20
12-0
5-01
20
12-0
7-01
20
12-0
9-01
20
12-1
1-01
U.S. Retail Sales, 1/2007 - 11/2012 Millions, Seasonally Adjusted
2015
0
500
1000
1500
2000
2500 1990-‐01-‐01
1990-‐09-‐01
1991-‐05-‐01
1992-‐01-‐01
1992-‐09-‐01
1993-‐05-‐01
1994-‐01-‐01
1994-‐09-‐01
1995-‐05-‐01
1996-‐01-‐01
1996-‐09-‐01
1997-‐05-‐01
1998-‐01-‐01
1998-‐09-‐01
1999-‐05-‐01
2000-‐01-‐01
2000-‐09-‐01
2001-‐05-‐01
2002-‐01-‐01
2002-‐09-‐01
2003-‐05-‐01
2004-‐01-‐01
2004-‐09-‐01
2005-‐05-‐01
2006-‐01-‐01
2006-‐09-‐01
2007-‐05-‐01
2008-‐01-‐01
2008-‐09-‐01
2009-‐05-‐01
2010-‐01-‐01
2010-‐09-‐01
2011-‐05-‐01
2012-‐01-‐01
2012-‐09-‐01
U.S. Housing Starts, 1/1990 - 11/2012 (thousand, annual rate)
1600
2016
0.00
5.00
10.00
15.00
20.00
25.00 19
90-0
1-01
19
90-0
9-01
19
91-0
5-01
19
92-0
1-01
19
92-0
9-01
19
93-0
5-01
19
94-0
1-01
19
94-0
9-01
19
95-0
5-01
19
96-0
1-01
19
96-0
9-01
19
97-0
5-01
19
98-0
1-01
19
98-0
9-01
19
99-0
5-01
20
00-0
1-01
20
00-0
9-01
20
01-0
5-01
20
02-0
1-01
20
02-0
9-01
20
03-0
5-01
20
04-0
1-01
20
04-0
9-01
20
05-0
5-01
20
06-0
1-01
20
06-0
9-01
20
07-0
5-01
20
08-0
1-01
20
08-0
9-01
20
09-0
5-01
20
10-0
1-01
20
10-0
9-01
20
11-0
5-01
20
12-0
1-01
U.S. Auto & Light Vehicle Sales, 1990-2012 (millions, annual rate)
130000
132000
134000
136000
138000
140000
142000
144000
146000
148000
2002
-01-
01
2002
-05-
01
2002
-09-
01
2003
-01-
01
2003
-05-
01
2003
-09-
01
2004
-01-
01
2004
-05-
01
2004
-09-
01
2005
-01-
01
2005
-05-
01
2005
-09-
01
2006
-01-
01
2006
-05-
01
2006
-09-
01
2007
-01-
01
2007
-05-
01
2007
-09-
01
2008
-01-
01
2008
-05-
01
2008
-09-
01
2009
-01-
01
2009
-05-
01
2009
-09-
01
2010
-01-
01
2010
-05-
01
2010
-09-
01
2011
-01-
01
2011
-05-
01
2011
-09-
01
2012
-01-
01
2012
-05-
01
2012
-09-
01
Thousands U.S. Total Employment, 1/2002-11/2012
130000
132000
134000
136000
138000
140000
142000
144000
146000
148000
2002
-01-
01
2002
-05-
01
2002
-09-
01
2003
-01-
01
2003
-05-
01
2003
-09-
01
2004
-01-
01
2004
-05-
01
2004
-09-
01
2005
-01-
01
2005
-05-
01
2005
-09-
01
2006
-01-
01
2006
-05-
01
2006
-09-
01
2007
-01-
01
2007
-05-
01
2007
-09-
01
2008
-01-
01
2008
-05-
01
2008
-09-
01
2009
-01-
01
2009
-05-
01
2009
-09-
01
2010
-01-
01
2010
-05-
01
2010
-09-
01
2011
-01-
01
2011
-05-
01
2011
-09-
01
2012
-01-
01
2012
-05-
01
2012
-09-
01
Thousands U.S. Total Employment, 1/2002-11/2012
2013
0.00
20.00
40.00
60.00
80.00
100.00
120.00
140.00
160.00
180.00
200.00
Mar-‐2001
Jun-‐2001
Sep-‐2001
Dec-‐20
01
Mar-‐2002
Jun-‐2002
Sep-‐2002
Dec-‐20
02
Mar-‐2003
Jun-‐2003
Sep-‐2003
Dec-‐20
03
Mar-‐2004
Jun-‐2004
Sep-‐2004
Dec-‐20
04
Mar-‐2005
Jun-‐2005
Sep-‐2005
Dec-‐20
05
Mar-‐2006
Jun-‐2006
Sep-‐2006
Dec-‐20
06
Mar-‐2007
Jun-‐2007
Sep-‐2007
Dec-‐20
07
Mar-‐2008
Jun-‐2008
Sep-‐2008
Dec-‐20
08
Mar-‐2009
Jun-‐2009
Sep-‐2009
Dec-‐20
09
Mar-‐2010
Jun-‐2010
Sep-‐2010
Dec-‐20
10
Mar-‐2011
Jun-‐2011
Sep-‐2011
Dec-‐20
11
Mar-‐2012
Jun-‐2012
Sep-‐2012
Case-Shiller 20-City Housing Price Index, 3/2001 - 9/2012
0
50
100
150
200
250
300 Ja
nuar
y 20
02
June
200
2
Nov
embe
r 200
2
Apr
il 20
03
Sep
tem
ber 2
003
Febr
uary
200
4
July
200
4
Dec
embe
r 200
4
May
200
5
Oct
ober
200
5
Mar
ch 2
006
Aug
ust 2
006
Janu
ary
2007
June
200
7
Nov
embe
r 200
7
Apr
il 20
08
Sep
tem
ber 2
008
Febr
uary
200
9
July
200
9
Dec
embe
r 200
9
May
201
0
Oct
ober
201
0
Mar
ch 2
011
Aug
ust 2
011
Janu
ary
2012
June
201
2
Case-Shiller Price Index, 1/2002-9/2012
Phoenix
Los Angeles
San Francisco
Denver
D.C.
Miami
Atlanta
Chicago
Boston
Detroit
CharloIe
Las Vegas
New York
Cleveland
Portland
Dallas
SeaIle
Excess Reserves in Depository Institutions 1/1950 – 11/2012
Got the Regulatory Blues??
Shall. Must. May not. Prohibited. Required.
0.95
1
1.05
1.1
1.15
1.2
1.25
1.3
1.35
1.4
1.45
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Industry Regulation Index
Oil & Gas Rail Paper Chemical Industry Mean
$ 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)
Cost???
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.
Moral Hazard enters the picture. Command and control reduces progress based on income growth and innovation.
0
100000
200000
300000
400000
500000
600000
700000
<20 Enterprise Exits, Fewer than 20 & More than 500 Employees,
1989 - 2010 Title
<20 Employees
-
100
200
300
400
500
600
0
100000
200000
300000
400000
500000
600000
700000 >500 <20
Enterprise Exits, Fewer than 20 & More than 500 Employees, 1989 - 2010 Title
<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.
0
100,000
200,000
300,000
400,000
500,000
600,000 19
70
1971
19
72
1973
19
74
1975
19
76
1977
19
78
1979
19
80
1981
19
82
1983
19
84
1985
19
86
1987
19
88
1989
19
90
1991
19
92
1993
19
94
1995
19
96
1997
19
98
1999
20
00
2001
20
02
2003
20
04
2005
20
06
2007
20
08
2009
20
10
2011
U.S. Patents Issued, Total & Domestic Owners 1970 - 2011
Domestic Owners Total
U.S. Report Card
Decade Real GDP Growth, Annualized
Real Per Capita GDP Growth Annualized
Economic Freedom of the World. U.S. Rank Last year in 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, 1951-2010
3.10% 1.89%
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.
0
10000
20000
30000
40000
50000
60000
70000
80000
90000
100000 19
40
1942
19
44
1946
19
48
1950
19
52
1954
19
56
1958
19
60
1962
19
64
1966
19
68
1970
19
72
1974
19
76
1978
19
80
1982
19
84
1986
19
88
1990
19
92
1994
19
96
1998
20
00
2002
20
04
2006
20
08
2010
Federal Register Pages: 1940-2011
Source: Crews (2010, 38), Office of Federal Register, 2011.
0
2
4
6
8
10
12
14
16
18
Federal Register Pages per $Billion Real GDP 1940-2011
0
2
4
6
8
10
12
14
16
18
Federal Register Pages per $Billion Real GDP 1940-2011
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.)
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.
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.
Bruce Bueno de Mesquita and Alastair Smith The Dictator’s Handbook, 2011
Bootleggers & BapXsts is a transmission theory
Politician/ Brokers
Interest Groups
Broker first has a knowledge problem. Then, a justification problem
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.
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.
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.
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.
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.
Let’s just call it Bootleggers & Baptists capitalism.
