Friday, February 11, 2011

Quote of the Day - Protection by regulation is illusory

I thought this was an interesting quote considering how President Barack Obama has lately been telling various groups how government regulation leads to innovation and growth when, in fact, regulation hampers the economic growth he seeks.

Additionally, as Investors Business Daily points out, we have "regulation without representation." As the article explains:
* Regulatory agencies enact more than 3,500 new regulations in an average year.
* A new federal rule hits the books roughly every two hours, 24 hours a day, 365 days a year.
* Regulation without representation is a major reason why the Code of Federal Regulations has ballooned to 157,000 pages and counting, making it far more difficult to do business and slowing economic recovery.
* The total cost of federal regulations last year was over $1.75 trillion.
* Every year, about 200 major rules hit the books -- these are defined as regulations that cost more than $100 million per year.
* In 2010, there were 224 major rules at various stages at the agencies.

Taken together, they cost businesses and consumers a bare minimum of $22.4 billion.

Considering all this, do you think the quote is correct?

"Regulation -- which is based on force and fear -- undermines the moral base of business dealings. It becomes cheaper to bribe a building inspector than to meet his standards of construction. A fly-by-night securities operator can quickly meet all the S.E.C. requirements, gain the inference of respectability, and proceed to fleece the public. In an unregulated economy, the operator would have had to spend a number of years in reputable dealings before he could earn a position of trust sufficient to induce a number of investors to place funds with him. Protection of the consumer by regulation is thus illusory." ~ Alan Greenspan


Mad Jack said...

The total cost of federal regulations last year was over $1.75 trillion.

How did the authors arrive at this figure? I note that there isn't any information about the process easily available.

While some regulation could likely be deleted without damage to the welfare of the general public, much of the 157,000 pages is unknown and wouldn't be missed - right up until you couldn't drink the water out of your own well anymore because of the pollution. You really think that the chemical plant wouldn't dump their left overs in Lake Erie? Check the history of the Cuyahoga River.

There are some industries in the United States that are impossible to over-regulate. The banking industry comes to mind, followed by the insurance industry. Manufacturing industries need more pollution control regulations with criminal penalties attached. Oil companies fall into this category. Regulations keep the construction industry from putting up cheaper junk than they would otherwise.

Unfortunately these industries are likely to get less regulation than they need, and what little they have is not nearly as effective as it should be.

I don't believe the figures in the article are accurate, nor do I believe that regulations are hampering economic growth. Economic growth in the United States is hampered by the NAFTA, by labor unions, by insanely high energy costs and by taxation. Regulations? No.

Maggie Thurber said...

Mad Jack - from the linked article, here is the quote with the reference to the study. I'm sure you'll find it through a Google search:

"The total cost of federal regulations last year was over $1.75 trillion, according to economists Nicole and Mark Crain in a report for the Small Business Administration. This well exceeds the $1.5 trillion budget deficit that has gotten so much more attention."

As for regulation - not all regulation is bad, but remember that regulation is like a pair of shackles on the ankles of a runner. Just because the runner can find a way to continue running and still compete with others doesn't mean he doesn't have shackles in the first place.

Horror stories abound about too much regulation and how it is even contradictory in many instances. And any company that pollutes (in this day and age of internet information) will suffer a much bigger negative effect from word of mouth than any amount of regulatory fines could ever do. The other thing to remember is that regulation tends to make people think everything is okay simply because there is a government regulation about an activity...that's too often a false sense of security that encourages people to 'accept' rather than find out themselves.

Just some more thoughts to add to the discussion.


Mad Jack said...

Horror stories abound about too much regulation...

Which is anecdotal evidence. That doesn't imply the story in question isn't true; rather it is to say that general law and regulation should never be made or rejected due to a single moral infraction.

...any company that pollutes... will suffer a much bigger negative effect from word of mouth than any amount of regulatory fines could ever do.

A partial truth. This depends on the offender's advertising budget, which will be used to counter negative publicity. As a counter to this, fines can be increased until the pain is felt. I have always considered fines to be particularly ineffective against violators. The person making the decision to violate regulations has little or nothing to lose and everything to gain in that the decision maker (manager, VP or CEO) is not personally fined or punished in any way. True, they might be fired, but that's unlikely if the person is highly placed. And even if the person is fired, so what? Most of these people could quit working today and simply retire on their accumulated wealth. Then there's the question about the perceived amount of damage done. Did a swamp that 90% of the populace has never seen get destroyed by a PCB spill, or did you and six of your neighbors lose your entire retirement fund? Such things matter.

The other thing to remember is that regulation tends to make people think everything is okay...

That's a nice point. It's against the law to carry a hidden gun in the mall, so we're all safe from harm. Right? I've often wondered if a victim has ever argued that point of law in the middle of an armed robbery. "Excuse me sir, but did you know that you're breaking the law?"

I think you're giving the general public a little too much credit. Consider the recent economic train wreck with attendant HAZ-MAT spill. The entire problem can be traced back to 1000 plus pages of legislation passed by a Congress comprised of people who not only failed to read the legislation, but even if they did read it wouldn't be able to comprehend the content let alone the ramifications. Now you, personally, would likely read it and with your education and background would realize just what the damned thing contained - but what then? Would you care to try and explain the legislation to a Congress with the attention span of an eight year old on the night before Christmas, and knowing that half the Congress majored in Fine Arts, marketing or paranormal science? Do you really and truly think these elected officials would understand or even care if they didn't understand?

An American Patriot said...

Sorry to dispute, Mad Jack, but the Cuyahoga River fire wasn't really as bad as it's been made out to be.

The most incredible part of the whole story was that it wasn't really a story until someone or some group wanted it to be a story. It became a rallying point and even the picture most often attributed to the event wasn't even of the event; it was from an earlier fire.

The crews that were out to deal with oil slicks and to watch for fires had it out in 30 minutes.

Even more interesting:

"Once upon a time, June 22, 1969, a river started on fire. So begins the historical event that has turned into the fable of the Cuyahoga River burning. ... Fable? Yes, according to Jonathan H. Adler, Case Western Reserve University law professor and director of the Environmental Law Center at the Case Law School, because the river portrayed as so polluted it would burn was, in fact, well on the way to improving its water quality. ... And fish, a bellwether of good water quality, were reported again swimming in the river at the time of the fire."

The only way the finance and banking sector is unable to be regulated enough is if the regulators aren't regulating. Interestingly enough, Bernie Madoff would have been caught prior to his scheme being billions of dollars, and the current crisis would have been avoided had the regulators been searching for the signs instead of searching for porn.

But, do go on.

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