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The “left” sees the last 34 years as a revival (was there ever a VIVAL?) of laissez-faire dogmatism. Some folks like myself see it as almost the diametric opposite. Of course, some of this could be “settled” by empirical evidence. The number of pages of regulations? The dollars spent complying with regulations? The number of regulators? The combined regulatory authority of local, state and federal agencies? The number of pieces of legislation on the books? The number of administrative agencies today versus the past? The amount of lobbying? And so much more. Do you think the linked article bothers with any of that? And when the non-evidence is suggested, we fall back on the famous, “well there was a culture of deregulation” that ruined everything by emasculating the power of regulatory agencies. Not only does pulling out a few instances of deregulation not make the point (data is not the plural of anecdote), the case must be made that regulation is good. And talking about the amount of it says nothing of this. It’s as if an entire branch of economics called Public Choice, for which at least one Nobel Prize was awarded, is wiped off the map because of the crankiness of a law professor in Texas.

Finally, and I’ve said this before, and I mean it in the most dogmatic ideological way possible. If you favor regulation qua regulation, then you have no right to be taken seriously. Period. And I mean it. Everyone, from the craziest anarchist to the nuttiest communist and everyone else on the sphere ought to despise regulation on its face. Why? Because if they claim to care about the things they actually care about, then regulations are AT BEST a cost, a sometimes unavoidable cost, but always a regrettable one, of getting the outcomes you want. So, if someone claims they really want clean air, or really want safe workplaces, or really want prudential financial behavior – then it is a tautology that getting those things without the Orwellian state is superior to getting those things with the Orwellian state. And this is so for three reasons.

Imagine the goal is prudential financial behavior, and imagine we have Consumer Financial Protection Bureaus in place and the FED and the OCC and the OFHEO and the many other agencies in place to make sure banks follow the “rules’ and not do things to promote financial instability for all of us. Fine. Suppose we even have the knowledge and ability to do it. When you have the CPFB be in place, and the police and courts to support it, here is what you also get:

  1. Fewer financial products, returns and innovation. If I were talking about medicine the analogy would work better. So, even for firms that are NOT risky and who ARE behaving well, having to hire huge compliance offices, and having to defend itself in court, even when innocent, is costly. And so we see more resources dedicated to compliance and less to making the financial products and services better and more secure. And in the long run we even get fewer financial services.
  2. High tax costs and so we are poorer. Note that taxes themselves are not a problem as they are mere transfers and whether to like them or not comes down to something close to preferences. But to the extent that raising and collecting taxes promotes distortions in economic activity, then we see ourselves poorer as a result of the taxes needed to support the CFPB and other regulatory bodies.
  3. Opportunity costs. All of the people in the CFPB, and all of the time and resources spent training and working, are NOT resources used in delivering actual financial safety and quality products.

Taken together, regulation of the financial sector can and should only be evaluated on whether the costs required by (1) – (3) are sufficient to provide the benefits of better financial market performance. This is a pretty high bar to meet. Certainly the rant in the link does not provide any such evidence that the outcomes of regulation are good. Are we supposed to ignore things like mercury standards that “save lives” at a cost of trillions of dollars? What of wind subsidies? But beyond that, does the author tell us about any of the above three costs? Nope, nor is he nor anyone much interested. So we’re just doing some sort of exotic voodoo dance here, but we’re not actually to see what works best. Furthermore, there may even be a group of people, including some with the first name Winter, that don’t much care about financial sector safety and macro-economic spillovers, so even if some regulation “made sense” it’s like designing super-fast trains to stations I have no interest in being at. Maybe that’s because I am an evil misanthrope.

Be that as it may – it is tautological that a world of safe financial products that requires no regulatory costs is superior to the same safe world that requires real regulatory costs. Whether that world is achievable is certainly an open and interesting question, but as a metaphysical matter, I can’t see how it is at all obvious that anyone can support regulation qua regulation unless it is for strictly non-economic reasons. Which is fine, but don’t pee on my back and tell me it’s raining. I don’t want to speculate on why people love regulation, maybe over a brew one night.

3 Responses to “Why We’re Doomed, Episode 2857729573”

  1. JB says:

    It should also be noted that regulation of this sort sends a message to consumers that their own due diligence (which is costly in terms of time and research regarding lenders, contracts, etc) is not necessary. After all, you’ve got big brother (sister?) CFPB looking out for you….

  2. Scott says:

    the president hosted a closed-door “summit meeting” with 20 chief executives of major corporations, where he promised to work more closely with the business community”

    Nice. Regulations tend to favor the upset few in those closed door summits. It really has nothing tondo with capitalism at all.

    Oh, also no need to menton the role the government had in the crisis, subsidizing home ownership and distributing risk to taxpayers. No, it must have been an abusive of the economic freedoms our government has given us.

    The whole thing is just sickening

  3. Harry says:

    I remember how Jimmy Carter twitched during one of the debates when Ronald Reagan said, “…after the recovery…”.

    Some of us lived through Jimmy’s recession, which I would argue would be equal or worse than the recession of 2008-2014, which by the way, does not compare with the Great Depression. In any event, Obama had hardly anything to do with “repairing” that financial crisis, which ended up screwing GM and Lehman Brothers bondholders.

    Reagan lowered taxes on income, savings, and investment, and deregulated, with a cooperative Senate. Oil was deregulated; the price of crude dropped, and it would be another thirty years before a gallon of gas would sound cheap at over three dollars.

    Back then, being an up and coming hard worker and just getting married, I found myself in Jimmy’s 70 percent tax bracket, filing jointly, which may have put me in the top 20%, the new class targeted for redistribution.

    But what happened after Reagan was quick growth, much faster (6%) than the Three Percenter Keynesans had predicted would reignite the invidious inflation already present. Long-term interest rates for Aaa bonds went from 12% to 8% in four years, and the American economy was revived by 1983.

    All of that the Progressives deny, and it has been their mission ever since, starting with Clinton running against GHWB, with George Stephanopolous saying Reagan presided over the worst economy in modern history, a deliberate lie embraced.

    GHWB, may he be happy, never embraced supply-side economic principles. He called it Voodoo economics, thought we should be kinder and gentler, and agreed with Clinton and the aggressive Al Gore.

    It is hard not to be political about this, WC, but these people are intruding on our lives.

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