Market Failure and Regulatory Failure as Catalysts for Political Change: The Choice between Imperfect Regulation and Imperfect Competition
40 Pages Posted: 4 Jun 2012
Date Written: 1989
American legal, political, and economic history has come nearly full circle. We began our republic with a powerful thirst for individual liberty and economic laissez faire. After nearly a century of regulated competition, we are returning to the humble origins of the rugged individualist. For nearly a century, the government has scrutinized and supervised America's infrastructure industries to a higher degree than the rest of the economy. Our federal government regulated various interstate activities of airlines, bus companies, motor carriers, railroads, freight forwarders, ocean vessels, pipelines, telecommunications, broadcasting, electricity, oil, and gas, while the state public utility commissions regulated the corresponding intrastate aspects. Whether regulated as "common carriers'' or "public utilities," a normative decision was reached that the "public interest" in these activities should be protected by government oversight. Regulation subsequently was expanded to protect public health, safety, and the environment.
But during the Ford-Carter-Reagan era, the emergence of Chicago-school neo-classic economics as the dominant ideology of Washington, D.C., stimulated by the political backlash against gargantuan, obtrusive government and onerous taxation of the New Deal and Great Society, led to a comprehensive reassessment of the appropriate role of government vis-a-vis the market. Consequently, the contemporary balance tilts strongly in favor of private sector solutions to societal needs. The choice between imperfect competition and imperfect regulation is never an easy one. Either system imposes significant costs and bestows significant benefits. This Article will identify the major philosophical schools, trace the evolution in public policy, and assess some of the principal costs and benefits of regulation and deregulation.
Keywords: Market Theory, Competition, Regulation, Deregulation, Infrastructure Industries, Imperfect Competition, Imperfect Regulation, Market Failure, Regulatory Failure, Public Policy, Political Economics, Public Interest
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