Friday, April 06, 2007

Regulatory Braggadocio

Today's morning news report breathlessly announced that the U.S. Department of Transportation is mandating the installation of a life-saving new technology in cars. The new technology allows computers to individually control the brakes on each car tire in order to prevent roll-overs and out-of-control skids.

I could feel myself momentarily feeling gratitude toward the wise regulatory mother who protected us with this life-saving rule. Then I thought about it for a moment. Wait a second; the television report went on to parenthetically mention that this technology has already been deployed in half of all new cars. The new regulation will mandate its installation in all new cars in five years. By that time, car manufacturers would have already voluntarily chosen to put it in all new cars anyway.

What is going on here is regulatory braggadocio. The regulator claims credit for a product she did not invent, one which private automobile manufacturers were going to implement anyway. The regulator stole the spotlight from the engineers and automobile executives who, acting out of self-interest, were making their product better by making it safer.

All regulations work this way. The technology behind a safety innovation is always created in the market by profit-seeking businessmen. They implement it, sooner or later, depending on the market demand for such a safety innovation. All technologies are costly and the market will determine whether and when it pays to implement a particular technology. It is estimated that this particular braking technology would add $110 to the price of a car. Would it be worth it if it cost $5,000 per car? Only a car maker and its customers can determine that, which is why costly safety improvements are typically installed in luxury vehicles first before they are mass-produced for cheaper cars.

The regulator co-opts this natural market process that makes products safer over time. In some cases, such as this one, the regulator merely steals the limelight from a safety enhancement that was being instituted anyway. In other cases, he forces on an unwilling manufacturer and customer a safety mechanism that is too expensive. Either way, the public gets a clear message. The regulator is beneficent and is the only reason products are safe. You can't trust profit-making corporations to make safe products. Because of regulation, those greedy businessmen are forced to make safer products.

As I thought through this, that fleeting feeling of thankfulness to the beneficent regulator was replaced by another feeling: contempt. And in my mind I thanked those who do get the credit: the engineers and software designers and executives who developed this life-saving technology at the world's automobile companies.

2 comments:

Jim May said...

This reminds me of Ayn Rand's example of the way people credit child labor laws, instead of economic progress, are credited with getting children out of factories.

Galileo Blogs said...

That is a good comparison.

Here's another one: the claim that workers' improvement in standard of living is due to unions, when in fact it is due to the rising productivity of labor caused by capitalism.

There are many more.