June 18, 2008
Posted by Jay Livingston
At Marginal Revolution, the anti-Krugman forces were firing with abandon. Krugman was writing about the recent killer tomato episode and other tainted-food crises (“Salmonella, salmonella, all I hear is salmonella”), and he pointed his finger at the free marketeers for their anti-inspection, anti-regulation policies.
MR’s Alex Tabarrok disagreed, providing some contradictory data, and the comments flooded in (over 100 and counting, some defending Krugman, some providing new data, some thoughtful, and some just snarky).
In the classic free-market model, nobody needs to keep an eye on food producers to make sure they are putting out a safe product. They’ll do it themselves. “Private companies would avoid taking risks with public health to safeguard their reputations and to avoid damaging class-action lawsuits.”
The argument reminded me of two principles from my days in the crim biz: deterrence and “broken windows.” Deterrence theory says that the effectiveness of punishment depends far more on certainty and swiftness than on severity. Giving a small punishment immediately after each infraction is more effective than lowering the boom only occasionally and a long time after the offense.
The broken-windows principle is that if you crack down on small stuff (broken windows), you’ll prevent more serious bad behavior. Conversely, allow the broken windows to go unrepaired, and you invite more serious violations.
Class action suits are like the severe punishment that comes rarely and years after the deed has been done. A company can cut corners for a long time before the crisis becomes visible. And if the harm does come to light, lawsuits still take a long, long time.
Regulation tries more for certainty. It tries to catch more violations and insists that they be remedied right away. Regulation also resembles a broken-windows policy. It tries to prevent big crises by making sure that the small violations are taken care of.
The downside of regulation, as the free-marketeers are quick to remind us, is inefficiency. It forces companies to devote time and resources to following the rules – effort that they might otherwise use in turning out product and turning a profit.
There’s a political irony here as well. When it comes to street crime, conservatives usually line up on the side of deterrence and broken-windows. Zero tolerance. When it comes to protecting consumers and employees against salmonella, mine collapses, occupational diseases, etc., these same conservatives oppose the deterrence and broken-windows approach of regulation. Instead, they prefer to leave victims to their own legal resources. (Some conservatives also want to limit those legal resources – restricting access to lawyers, limiting the range of class action suits, and putting caps on tort awards.)
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