DIRECT REGULATION AND MARKET PERFORMANCE IN THE AMERICAN ECONOMY.

Perhaps one-fifth of U.S. national income originates in industries subject to some direct regulation, and yet economists know very little about how regulation affects the market performance of an industry. The preambles of regulatory statutes hardly provide a reliable guide. Neither does the intensity of the complaints of regulated businessmen. This article seeks to point out the possible roads leading toward fruitful conclusions and to mention the tales told by a few travelers along the way. In the field of direct regulation, the obvious snare lies in supposing that the existence of maximum-or minimum-rate regulation guarantees profits respectively lower or higher than they would otherwise be. But the degree to which the prices that regulated businesses would like to charge could actually be translated into a different level of long-run profits depends on many factors. In addition, direct inferences of the net effects of regulation from its virtual impact tend to miss the possibility that regulation has important sideeffects on performance, as well as the more dubious possibility discussed by some political scientists that regulation typically becomes subverted to the interests of the regulated.