On 11 September, I testified on the lack of evidence in favour of regulation at a public hearing of the Senate’s “Nanny State” Inquiry at Parliament House in Canberra. As the Hansard transcript reveals, that led to a lively and good-natured exchange on the nature of regulation with the Chair, Senator Dastyari.
My testimony was based on my submission to the Inquiry (number 237) titled, “Regulating choice: The need for evidence“. I concluded from reviews of the experimental evidence on the effects of regulation, that the Iron Law of Regulation applies.
The Iron Law has been stated as;
There is no form of market failure, however egregious, which is not eventually made worse by the political interventions intended to fix it.
An honest belief in the value of regulation is presumably grounded in a faith that a wise and well-intentioned regulator could in practice increase total net welfare.
That belief is not obviously plausible, as it depends on a sequence of assumptions or conditions that are highly unlikely to apply in practice. Can you think of any regulation where the regulator has met all of the ten necessary conditions for successful regulation described on page 3 of my paper with Scott Armstrong?
Our research has investigated the effects of government regulation of speech (by way of mandatory disclaimers in advertising), corporate social responsibility and of the environment. We could find no evidence that regulation increased welfare – in most cases it caused harm. We have not found a regulation that would meet even one of the ten necessary conditions for successful regulation.