Blunderbusses, Rivers, and Expensive Air Fare

Lessons from Stephen Breyer’s Regulation and Its Reform

Happy Friday.

I was on the Fordham Institute’s Gadfly podcast this week, talking about school choice and regulations. I gave a shout out to the book that most influenced my thinking on the question (though I initially got the name wrong), Stephen Breyer’s Regulation and its Reform. The book was published in 1982, more than a decade before Breyer would become a Supreme Court Justice, and was called at the time the “bible of regulatory reform.”

I used Breyer’s adage that it is easy to get the first 90% of pollution out of a river, but very hard to get the last 10% out. Regulation can create the blunt, clear rules that eliminate the worst actors and worst acts, but the kinds of fine tuning needed to optimize systems is not really regulation’s strength. And the more fine tuning that happens, the larger the list of regulations becomes and the more difficult and onerous it becomes to comply with them.

It might surprise people today, but in the late 1970s progressive politicians like Ted Kennedy and Jimmy Carter pushed for deregulation of major industries, from trucking to telecom to airline travel. It might also surprise people just how regulated things like air travel were prior to deregulation.

While we are all familiar with the Federal Aviation Administration (FAA), tasked with ensuring flight safety, there also used to be an organization called the Civil Aeronautics Board (CAB). It allocated airline routes, deciding what airlines could fly from where to where. It also fixed the prices of those flights. At first, it set prices at the first-class Pullman rail car fare for the same route. Later it moved to a cost-plus model that paid airlines their costs plus a “reasonable” profit. As a result, flights were incredibly expensive.

In 1978, Congress passed and President Carter signed the Airline Deregulation Act, phasing out the CAB and its price controls. The result? A 1997 Brookings Institution paper put it this way:

“Every serious study of airline deregulation in the intervening years has found that travelers have indeed benefited enormously…airfares, adjusted for inflation, fell 33 percent between 1976—just before the CAB instigated regulatory reforms—and 1993. Deregulation was directly responsible for at least 60 percent of the decline—responsible, that is, for a 20 percent drop in fares. And travelers have benefited not only from low fares, but from better service, particularly increased flight frequency.”

Regulation and its Reform holds up quite well even some forty-plus years post publication. After offering the historical justifications for regulation (everything from the control of monopoly power to compensating for externalities to inadequate information), it describes different kinds of regulations and their uses.

After all of this, Breyer offers some important rules of thumb that regulators should keep in mind.

He writes,

“First and most obviously, modesty is desirable in one’s approach to regulation. It should be painfully apparent that whatever problems one has with an unregulated status quo, the regulatory alternatives will also prove difficult.”

And,

“The discussion strongly suggests that regulators ought to aim at the worst cases, and that, in attacking such cases, they should strive for simplicity. Efforts to cure every minor defect, to close every conceivable loophole, are ultimately counterproductive.”

Tying it all together, he says:

“In other words, increased efforts to fine-tune regulation often will not yield improved results. Regulators of great intelligence, with genuine good will, working extremely hard, are nonetheless unlikely to deal effectively with borderline cases. The defects and difficulties inherent in the system make regulation a crude weapon of governmental intervention—a blunderbuss, not a rifle. These defects are embedded in the process to such an extent that they cannot readily be changed.”

The key insights of Regulation and Its Reform are the questions it pushes policymakers to ask before drafting and imposing regulations. What is the problem we are trying to solve? Is regulation the best tool to solve it? Will the cost of regulations exceed their benefits?

Regulations work best with they are broad, simple, and clear. They are bad at fine tuning and can become onerous very quickly.

Interestingly, there appears to be a new deregulatory fervor on the left. With new books like Abundance, major progressive luminaries are grappling with the impacts of regulation on housing, transportation, and other infrastructure. We’ll see what happens with that.

I wrote a short paper back in 2018 about reforming regulation in education. It’s no Regulation and its Reform, but I think it holds up pretty well, too. As I conclude:

“Regulating government bureaucracies and markets is not new. The lessons learned from those efforts are not new either. Unfortunately, it appears that few of those lessons have trickled into education policy, where regulation is used before better options are exhausted; regulations are impossibly complex; regulations are tasked to do the job of a rifle even though they function like a blunderbuss; performance standards are allowed to be perceived as design-neutral; and likely alternatives are not considered when drafting regulations. The list goes on and on…The world of education policy, and school choice policy in particular, needs to rethink regulation. Regulations need to simplify. They need to do a job that they can actually accomplish. They need to focus on the right targets. Unless and until that happens, they will stand in the way of meaningful educational improvement”