Property rights and regulation Unit 4: Economics of the Public Sector Property rights and regulation

The Government and the Market Economy Consider this quote from the economist Charles Wheelan: “Good government makes a market economy possible. Period. And bad government, or no government, dashes capitalism against the rocks, which is one reason that billions of people live in dire poverty around the globe.”

The Constitution says… That Congress has the following economic powers: To lay and collect taxes To provide for the general welfare To borrow money To regulate interstate and foreign commerce To establish uniform bankruptcy laws To coin money and regulate its value To fix the standard of weights and measures To protect the writings and discoveries of authors and inventors

The Government and Property Rights Because incentives matter, the ownership of property creates a number of incentives to promote economic progress WHY???

Government Protects Private Property Land Personal Possessions Other physical assets And…Intellectual Property! Protecting property rights essential to success of free market system…why? Because INCENTIVES MATTER Private Ownership encourages people to take care of their property – value of house Encourages people to make most productive use of their property –maximize crop yield, e.g. Encourages people to develop their property in ways that benefit others – if others benefit from use, owner makes more money.

Property Owner Rights Owners of private property have the following rights: The right to exclusive use of their property The right to legal protection against trespassers or abusers of their property The right to sell or trade their property

One exception to the rights of owners of private property… Eminent domain Is the power to force the transfer of property from a private owner to the government for a public purpose Partner Discussion: Identify 2 scenarios that eminent domain might be used by the government

Partner Discussion How does the government protect the people’s property rights? List at least 2 ways the government protects private property.

The Government and Property Rights The government protects the rights of property owners mainly: Through the court system By issuing patents, copyrights, and trademarks

The Government and Regulation Through regulation, the government seeks to protect the interests of all participants in the economy It does this by: Maintaining competition Protecting consumers, savers, and investors Protecting workers

Maintaining Competition Competition is essential to a free market economy Efficient use of resources Innovation Ensure lowest possible prices When markets fail to be competitive, the government steps in to ensure or encourage competition

Maintaining Competition Regulatory agencies Justice Department Federal Trade Commission Investigate and enforce laws protecting against: Price fixing Bid rigging Market division Monopolies and trusts

Protecting Consumers, Savers, and Investors To ensure that consumers, savers, and investors: Possess all necessary information to make wise and safe choices Are protected against unscrupulous/dishonest businesses and individuals Feel confident about their economic choices

Protecting Consumers, Savers, and Investors Regulatory Agencies Food and Drug Administration (FDA) “there was never the least attention paid to what was cut up for sausage…there would be meat that had tumbled out on the floor, the dirt and sawdust, where the workers had tramped and spit…meat stored in great piles in rooms; and the water from leaky roofs would drip over it, and thousands of rats would race about on it…these rats were nuisances, and the packers would put poisoned bread out for them; they would die and then the rats, bread and meat would go into the hoppers together” Upton Sinclair Consumer Product Safety Commission Savers and Investors Federal Deposit Insurance Corporation (FDIC) Security and Exchange Commission (SEC)

Protecting Workers To ensure that workers: Get the wages due to them Work in workplaces free from discrimination Are provided unemployment insurance Health and well-being is protected in the workplace

Protecting Workers Regulatory Agencies Department of Labor Occupational Safety and Health Administration (OSHA)

Partner Discussion How might government regulation be bad or negatively interfere with the marketplace? Identify two possible instances of the negative side of government regulation

The Downside to Government Regulation Overregulation Compliance with some regulation is expensive Might discourage economic activity E.g. OSHA standard on ladder safety: “The general slope of grain in flat steps of minimum dimension shall not be steeper than 1 in 12, except that for ladders under 10 feet in length the slope shall not be steeper than 1 in 10…local deviations of grain associated with otherwise permissible irregularities are permitted” Balancing costs and benefits Debate over: At what point is regulation unnecessary or needs to end? Example: Clean Water Act – how clean does water have to be?

The Downside to Government Regulation Regulatory capture Best regulators are people who worked in the industry being regulated Best people to ensure an industry is in line with government regulations is the people who worked in the regulatory agency This creates a “revolving door” Regulatory capture = regulatory agencies are dominated by the industries they regulate Captured agencies act in the best interest of the industry rather than in the public interest