The Economics and Politics of the Slowdown in Regulatory Reform

The late 1970s witnessed a series of major changes in regulatory policy that were based in large measure on economic policy research, including deregulation in transportation and hyrdrocarbon fuels and the introduction of limited forms of emissions trading in environmental regulation. In the early, 1980s, the pace of reform slowed dramatically. This essay addresses the economic and political sources of the slowdown, and argues that economists have been less successful when their advice is to undertake structural and procedural changes in regulation, as opposed to eliminate it altogether. The primary reasons for their lack of success are, first, that political leaders view structure and processd as a means to advantage allies and disadvantage foes, not as instruments for improving performance, and second, that economists are less credible than in the past because they are so thoroughly involved as consultants represnting an interest, which undermines their credibility as proponents of reform.