‘Snow’ links: finding the right level of regulation

Mush on my windowsill.

I’m sitting in DC, looking out a window at a mushy, mostly liquid ‘snow’ storm named after an obscure federal budgetary procedure. There’s a joke in there somewhere about failing to meet the hype. But instead, I’ll offer some links to articles of interest over the past few weeks.

Regulatory challenges. Slate blogger Matt Yglesias is buying a new house, and instead of selling his old condo, he plans on renting it out and turning it into an income property. He documents the bureaucratic red tape encountered in the process to make this business legal, highlighting the absurdity that drives people nuts about government bureaucracy – the fact that none of the hoops you must jump through seem to actually matter to the regulatory issue at hand:

The striking thing about all this isn’t so much that it was annoying—which it was—but that it had basically nothing to do with what the main purpose of landlord regulation should be—making sure I’m not luring tenants into some kind of unsafe situation. The part where the unit gets inspected to see if it’s up to code is a separate step. I was instructed to await a scheduling call that ought to take place sometime in the next 10 business days.

Yglesias notes that DC fares poorly on many metrics of regulatory efficiency and friendliness to entrepreneurs. Granted, those rankings all ought to be taken with a grain of salt, as they often fail to measure what really matters and instead focus on indicators not directly linked to entrepreneurship (there is also the matter of state-by-state rankings lumping in a city-state like DC into their metric – not exactly an apples-to-apples comparison).

The real issue, as Yglesias touches on in a later blog post, isn’t whether regulations are good or bad, but whether the regulations we have are effective and if they cover the right topics:

The way I would put this is that the American economy is simultaneously overregulated and underregulated. It is much too difficult to get business and occupational licenses; there are excessive restrictions on the wholesaling and retailing of alcoholic beverages; exclusionary zoning codes cripple the economy; and I’m sure there are more problems than I’m even aware of.

At the same time, it continues to be the case that even if you ignore climate change, there are huge problematic environmental externalities involved in the energy production and industrial sectors of the economy. And you shouldn’t ignore climate change! We are much too lax about what firms are allowed to dump into the air. On the financial side, too, it’s become clear that there are really big problems with bank supervision. The existence of bad rent-seeking rules around who’s allowed to cut hair is not a good justification for the absence of rules around banks’ ability to issue no-doc liar’s loans. The fact that it’s too much of a pain in the ass to get a building permit is not a good justification for making it easier to poison children’s brains with mercury. Now obviously all these rules are incredibly annoying. I am really glad, personally, that I don’t need to take any time or effort to comply with the Environmental Protection Agency’s new mercury emissions rules. But at the same time, it ought to be a pain in the ass to put extra mercury into the air. We don’t want too much mercury! We don’t want too much bank leverage!

The more ideological stance (regulation is bad!) might be easier to communicate; it might resonate with the public based on their experience at the local DMV. It’s a complicated reality, and our regulations not only need to reflect that, but also likely need periodic review and revision.

Regarding a common issue in the urban context, Matt writes:

“This city has too many restaurants to choose from” is not a real public policy problem—it’s only a problem for incumbent restaurateurs who don’t want to face competition.

This reflects some of the tension on liquor license moratoria in DC (see the discussion about IMBY DC). The contrasting position is that restaurants do indeed create some negative externalities that need to be addressed. The challenge for public policy is then in addressing the negatives without falling into the trap of mis-stating the problem.

Regulatory reform. Assuming we correctly state the problem, then what do we do to change things? DC is forming a task force to look at these issues. In some googling of related articles, I ran across an old op-ed from Helder Gil about a potential direction for regulatory reform, radical simplification:

One solution is the radical simplification of existing business laws and regulations. “Radical simplification” is the wholesale rethinking of a law’s original intent, its current actual effect and whether those two points still intersect in a way that advances public policy.
Consider the contrast to DC’s zoning regulation review process, and the power of the status quo bias. Even the terminology of ‘zones’ is no longer useful, Roger Lewis writes:

 Let’s dump the word “zoning,” as in zoning ordinances that govern how land is developed and how buildings often are designed. Land-use regulation is still needed, but zoning increasingly has become a conceptually inappropriate term, an obsolete characterization of how we plan and shape growth.

I would go farther than Lewis and suggest that the terminology is not the only problem; the content of the regulations is also problematic. Lewis goes on to list numerous shortcomings of the existing regulatory framework – perhaps inadvertently making the case for radical simplification?

Beware non-governmental regulation. To be clear, these challenges are not solely governmental. The burden often falls on the government in protecting the public purpose, but governments are not the only entities with the common good in mind. Consider the home-owners association.

Last month, the Washington Post reported on an epic legal battle between a Fairfax County HOA and a member over a very minor size violation for a political sign. HOA representatives on a power trip sought to impose penalties for violating rules that were not expressly granted to the HOA in the association’s bylaws. The HOA lost the case, the resulting legal fees bankrupted the association, forcing it to pursue the sale of a privately-owned park area.

These kinds of battles are common – and often invoke words like ‘tyranny’. They highlight both challenges of regulation and also of governance. Clearly, the content of some regulations are an issue, but so is the process for changing or even just reviewing those regulations.

Perhaps HOAs are not strictly necessary for a grouping of semi-detached homes (as is the case in the Fairfax County example), but some level of common-area administration is necessary in multi-unit buildings, no matter how you slice it. The need for HOAs also raises the question about the role of home-ownership in multi-unit buildings and the regulatory environment that enables it (see Stephen Smith asking “why do condos even exist?” at Market Urbanism) – which, after all, is a relatively young and untested legal field.

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