Regulation can backfire, benefit wrong parties

Regulators — no matter how well-intentioned, no matter how noble their cause — usually fail to achieve their goals. Here’s a look behind the scenes of how things can work.

In a Washington Examiner article, Timothy P. Carney relates this story:

There’s a metaphor popularized by economist Bruce Yandle that is useful in explaining efforts to regulate anything from energy to toy safety. Call it the Tale of the Baptist and the Bootlegger.

Picture a small-town Southern politician after Prohibition’s repeal. Call him Jones. Jones’ campaign needs both cash and a winning issue. The state’s most prolific bootlegger comes and offers Jones both. “I can bankroll your entire campaign. You just need to outlaw alcohol in the county. If you close down the bars and clear the liquor out of the corner stores, the men will all have to come to me for their fix.”

Jones, with newly heavy pockets, walks down to the Lady’s Temperance Hall and declares, “Ladies, I’m running to end the scourge of alcohol in this town, and I’m asking for your support.” At his campaign kickoff the next week, Jones has the entire Temperance Union and the local preacher onstage endorsing him, and of course, he’s got the pipeline of alcohol cash from the rumrunner who will get even richer when the county goes dry again.

This appears in his article How Philip Morris benefits from tobacco regulation. It’s a revealing tale of how industry — specifically big and powerful companies in an industry — benefit from regulation designed to control them.

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