This must be the new and improved, more business friendly President. (Like he wasn’t business friendly enough already? What about bailing out GM, Chrysler, and most of the finance industry?) This is the one that needs to raise $1 billion in campaign funds for re-election and knows it won’t come from unemployed and financially struggling voters.
This order requires that federal agencies ensure that regulations protect our safety, health and environment while promoting economic growth. And it orders a government-wide review of the rules already on the books to remove outdated regulations that stifle job creation and make our economy less competitive. It’s a review that will help bring order to regulations that have become a patchwork of overlapping rules, the result of tinkering by administrations and legislators of both parties and the influence of special interests in Washington over decades.
When is the last time you read a Democratic politician that suggested something like “remove outdated regulations that stifle job creation and make our economy less competitive”? There’s something even more weird and ironic about this sudden urge to op ed for the WSJ. This is an interesting day for the release of a new improved middle path that’s sounds like something the Club for Growth can really sink its teeth into. On this very same day, “The Financial Stability Oversight Council on Tuesday released its six-month study into the Volcker rule and held its third public meeting.” according to FT Alphaville. This group has just made it very clear that removing what several administrations thought was “outdated regulations that stifle job creation and make our economy less competitive” caused the biggest financial melt down and global recession since The Great Depression. They want more regulation not less.
At the moment, banks are playing musical Special Purpose Vehicles; a delightful accounting parlor game that does nothing to get rid of systemic risk. According to the FT article, this includes “creatively shuffling their more obvious proprietary trading operations internally (for example, into asset management and ETF desks) and externally into spun-off funds”. Sure, like that saved ENRON all that nasty embarrassment of bad decision making.
While this report is trying to pick up the pieces of nuclear financial meltdown by suggesting which gaps in regulation need to be filled, the President is chatting up the CEO set on the WSJ op-ed page. There are not even any code words or in-between the lines nudge, nudge wink, winks in these statements. He’s just pandering away.
As the executive order I am signing makes clear, we are seeking more affordable, less intrusive means to achieve the same ends—giving careful consideration to benefits and costs. This means writing rules with more input from experts, businesses and ordinary citizens. It means using disclosure as a tool to inform consumers of their choices, rather than restricting those choices. And it means making sure the government does more of its work online, just like companies are doing.
Does this mean the bidding window is open on which regulations the K street minions want thrown out next? That worked so well with looking the other way for the shadow banking industry and letting the commercial banking industry run a virtual casino, didn’t it? There’s a list of ten major regulatory blueprints coming from The Financial Stability Oversight Council. Are investors, holders of 401ks, pension plans, and savers expected to take any of this seriously given the Wall Street missive?
Regulations reflect the social cost of private consumption and private production of goods and services that have bad side effects. (See this Wikipedia entry on market externalities for more information.) Markets with externalities have bad side effects that do not fall completely on the private producer or the private consumer. This leads to market inefficiency. Goods and services with negative externalties get overproduced, they are under priced, overconsumed and the side costs hit all of us with some of us suffering more than others. Usually, the ones that suffer the most are those least able to get out of the way or stop the problem. The experiences of Hinkley California, people that get lung cancer from secondary smoke, and any of us that were invested in financial or housing assets in the last five years suggests that you cannot just let people and businesses run amok and hope they’ll do right by the people they hurt. Without an effective and accessible judicial system and a vigorous system of sticks and regulatory oversight, you get all kinds of social costs that we get to manage without having any of the fun of buying and using the product or service. Ask me. I’ve spent the last five years living with the results of badly built levees and dealing with the first year of a BP Oil disaster. Let’s point to my 403(B) and my home price that are still in a recovering state from the shadow banking boys run amok. I’m sure you can list a boatload of the ones that the Federal Government ignored recently to give business a more ‘competitive environment” too that have cost you more than they’ve been worth. Sure, they’re now creating more jobs along the Gulf Coast right now but would you seriously let one of your children on to a fishing boat or deep water drilling rig? Do you seriously want your child sitting next to a chain smoker day in and day out?
So, my next question is did I just read that every regulation is now going up to the highest bidder? Maybe, at least, if we get them off the books, we won’t have the moral hazard of thinking any one pays attention to them anymore. If that’s the case, we should all be trial attorneys litigating hazard suits. From where I sit–in a city reeling from the social costs of externalities–our biggest problem is that no one takes regulations or regulators seriously any more because the federal government prioritizes the bottom lines of the perpetrators and not the suffering and the well being of the victims.