I missed the Democratic debate last Tuesday evening, occupied as I was with listening to classic rock from the 1970s. What would have interested me in that debate was the discussion of the proper role of regulation in modern capitalism.
The U.S. doesn’t seem to engage in the topic like one might expect in a mature, developed economy. There is little intelligent discussion about the costs of too much regulation on the one hand, and the excesses of capitalism on the other. That is a shame, because both sides of those issues create real economic frictions with substantial societal costs.
Consider the slowdown in productivity in the U.S. in the past few years (see total labor productivity, via Federal Reserve Bank of St. Louis). Wharton School professor Jeremy Siegel has wondered if regulation isn’t a major reason behind the decline. I suspect that’s one of many factors, although much of it might be accounted for by measurement flaws. (You can hear Siegel discuss this in our Masters in Business radio podcast this coming weekend).
I will defer the issue of saving capitalism from itself to some future column. But a related issue I would like to address is how poor a job the U.S. does in regulating industries to which it grants monopoly or oligopoly status. Consider the following chart:
It raises the question of why prices for every major tech product and service have fallen, except cable and satellite television. The answer comes to us from Economics 101: it is a function of competition, of which there is very little in that industry. Add to that the cost in time and energy of switching providers; it’s so aggravating to drop Comcast as your cable provider that a new service will spare you the pain and charge $5 to do it for you.