THE REGULATED INDUSTRIES

This timely review of the economic problems involved in government regulation of basic industries stops short of offering solutions. MacAvoy, a former member of the President's Council of Economic Advisers and now a professor at Yale, has too much political savvy to either suggest or expect immediate reform. His hope is to induce restraint in regulators by spotlighting the deficiencies of an increasingly burdensome system. Eschewing the conventional horror stories, he relies instead on mournful numbers to make his case. In a ten-year period, he points out, the proportion of the GNP accounted for by regulated industries jumped from just over 8 percent to almost 24 percent--largely because, since the late 1960s, lawmakers have been using the regulatory process to attempt improvement of health, safety, and environmental standards. ""By the 1970s,"" MacAvoy alleges, ""regulation had become so extensive that it had begun to have measurable effects on the overall economic condition of the country as well as on the provision of goods and services in certain markets."" Citing reduced rates of output growth--and hence poorer service--in energy, transportation, and telecommunications, he puts the blame on decelerating investment rates that are the result, in turn, of regulatory lag--i.e., delays in the granting of price relief to offset inflation-fueled cost increases. According to studies, moreover, agencies charged with upgrading the quality of life have accomplished remarkably little despite imposing sizable costs on industry and consumers. (Credit for the lower highway accident and death rate, for instance, belongs to the 55-mph speed limit, not the NHTSA.) Currently, MacAvoy notes, deregulation has become the subject of ""reformist rhetoric,"" and phased decontrol is occurring in a few fields, such as air transport, natural gas, and trucking. He is not convinced, however, that a real trend is under way. Against that day, he offers three modest proposals: mandatory assessment of economic effects in health/safety rule-making; deregulation of industries where control is no longer justified; regulatory profit constraints based on realistic appraisals of the investment needed to provide adequate service. A superior critique in an area of pressing concern.