Doing Business in America

We all know that regulatory uncertainty is a conservative myth, right? The very idea that the tens of thousands of pages of federal regulations are inhibiting American business is just laughable, no?

Well, someone forgot to tell the Economist:

America is meant to be the home of laissez-faire. Unlike Europeans, whose lives have long been circumscribed by meddling governments and diktats from Brussels, Americans are supposed to be free to choose, for better or for worse. Yet for some time America has been straying from this ideal.

Consider the Dodd-Frank law of 2010. Its aim was noble: to prevent another financial crisis. Its strategy was sensible, too: improve transparency, stop banks from taking excessive risks, prevent abusive financial practices and end “too big to fail” by authorising regulators to seize any big, tottering financial firm and wind it down. This newspaper supported these goals at the time, and we still do. But Dodd-Frank is far too complex, and becoming more so. At 848 pages, it is 23 times longer than Glass-Steagall, the reform that followed the Wall Street crash of 1929. Worse, every other page demands that regulators fill in further detail. Some of these clarifications are hundreds of pages long. Just one bit, the “Volcker rule”, which aims to curb risky proprietary trading by banks, includes 383 questions that break down into 1,420 subquestions.

Hardly anyone has actually read Dodd-Frank, besides the Chinese government and our correspondent in New York (see article). Those who have struggle to make sense of it, not least because so much detail has yet to be filled in: of the 400 rules it mandates, only 93 have been finalised. So financial firms in America must prepare to comply with a law that is partly unintelligible and partly unknowable.

And that’s just Dodd-Frank. Remember Sarbanes-Oxley, the legislation that was supposed to prevent another financial crisis? Haha. Good times. Well, you combine Sarbanes-Oxley with Dodd-Frank and you’ve got a mess of regulation so dense that Facebook recently blasted the regulatory environment for making their IPO a nightmare. This is why more IPOs are occurring in markets away from our shores than within them.

It’s not just Obama, either. He’s done a lot of damage — the Economist notes that the number of diagnostic codes in our healthcare system will increase next year from 18,000 to 140,000. And last week he made a laughable proposal for “tax reform” that would end up with lower rate but more loopholes, credits and subsidies. But Republicans have played their part, too, pushing “anti-terrorism” regulation that has slathered immigration, finance and travel in paperwork. And SOX was signed by Bush.

Getting rid of regulations sounds good, but there are a lot of regulations that we need. As the financial crisis showed, we have a banking industry that will happily construct elaborate financial vehicles that even they don’t understand. We have whole industries that will pretend they’re not hurting the environment. They do this not because they are evil, but because they are human and it simply human nature to pretend a problem doesn’t exist when it involves our money, our power or our pride. The lead industry spent decades ignoring their own scientists and insisting that lead was harmless. That wasn’t because they liked the idea of children destroying their brains; it was simply a willing suspension of disbelief. Government is an imperfect and frustrating regulator. But it’s not something we can simply push off a cliff.

But attacking regulation piecemeal — the way Obama has kind-sorta proposed and the way the Republicans kinda-sorta do — isn’t going to work either. There are tens of thousands of regulations and we could spend weeks getting rid of just one. Each one has its advocates; each its pencil-pushers who depend on it. The inertia is simply enormous.

No, what we need — what the Economist notes and what Phillip Howard has been flogging for years — is a complete change in our approach to regulation. What we have designed is a system that tries to idiot-proof itself, that tries to anticipate every eventuality, ever possibility so that there is no possibility of error. But in doing so, we have made the perfect the enemy of the good. We have a system in which something as simple as finding out how much money a bank has can take years. We have a system is incapable of responding to new problems until new rules have been passed. This is like mapping out a mine field by stepping on all the mines.

What we need to do is strip down the regulations to the basics and empower bureaucrats to use their judgement. Hand in hand with that comes accountability — the ability to fine or fire bureaucrats who exceed their authority and make bad decisions.

That has a downside, too: bureaucrats with power and regulations that are necessarily not specific to every conceivable situation. It is this situation that Harvey Silverglate raged against in his book. But the alternative is a nation that can not move a pinkie without years of discussion and millions in legal fees. The alternative is that the Gulliver of American industry is tied down by a million Lilliputian strings of regulatory bullshit.

And the Left should be the biggest cheerleaders for regulatory reform. They keep telling us we need to remake our energy industry to fight global warming. How on Earth are we going to do that when it takes ten years to do the environmental impact study for a single power line? They keep telling us we need a better approach to immigration. We can’t do that when even getting a work visa involves three pounds of paper and half a pint of blood. They keep telling us our healthcare system is too expensive. How are we supposed to make it cheaper when every hour of patient care is matched by an hour (or two) of paperwork?

Republicans make a lot of noise about regulation but I’m not sure how serious they are since heavy regulation favors powerful businesses (see the CPSIA). They seem happy to rant about it on TV but show little inclination to do anything besides fight a rule or two that have gotten some attention in the media. They are unable or unwilling to admit that any progress on regulatory reform is going to mean giving some power to government agents to interpret and enforce the law.

I don’t like the idea of empowering bureaucrats any more than you do. But as long as it comes with accountability — the ability to punish those who exceed or abuse their power — it’s the least worst alternative.

And what’s the worst alternative? What we’re enduring now. A regulatory state that is massively complex, hideously expensive and doesn’t accomplish anything.

Comments are closed.

  1. sh

    This plan sounds a bit like throwing your gasoline on the barn since it was burning but kinda slowly.

    I’m open to regulation but the problem is not legislators giving regulators too many items to opine on. It is too many items being regulated. You mentioned Glass Segal. It worked. It was not ridiculous complex.

    Maybe we are sort of thinking the same thing but I think handing more open ended power to regulators is a bad idea. They’re already overstepping their mandates in several areas. Regulators love complexity and will create it on their own given the chance. Without standards rules will not be evenly applied. Plus worst of all; over the years it has come up again and again that regulators don’t always understand what they’re regulating… Guidelines at least help insure that sane rules are enforced. Anyway I’d add in parting; administrative law was grafted onto the Constitution. It’s a little dangerous to have at all. Expanding its power takes power out of the elected branches of government.

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  2. Seattle Outcast

    What regulators love to do is audit companies – it justifies their jobs while giving the appearance to actually doing something worthwhile. It also wastes time – billions of dollars of it a year and forces companies to hire people that do little more than deal with the regulators full time.

    Most large businesses have “compliance officers” whose only job is to ensure that the company doesn’t run afoul of any one of thousands of different regulations. Since this is impossible, their real job is to explain away non-compliance and keep the fines/threats minimized. This sort of BS does NOTHING to stop fraud or illegal activity (illegal in the real sense, not “illegal because we said so” shit), yet costs out the ass.

    This is a severe hindrance on how a company works because now there is a sizable percentage of the budget tied up in just giving the feds regular handjobs instead of expanding, buying new equipment, etc. It’s far easier to just fucking move everything out of the country and deal with less bullshit.

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  3. AlexInCT

    And that’s just Dodd-Frank. Remember Sarbanes-Oxley, the legislation that was supposed to prevent another financial crisis? Haha. Good times.

    Anyone that thinks bought & paid for big government politicians actually generate these leviathan law tomes, which we more and more have to pass before we find out what gets in it, to help the little people, instead of creating these legal morasses to help them rig the game so everyone needs to come to them for favors, which have a high financial cost that benefits the politician, is a moron.

    You wouldn’t ask the guy that held you down so his buddy could rape you to help stop the rapist from doing it to you again, would you? Then why do so many still believe that we need to go back to these politicians to ask them to fix the problems they created in the first place?

    Dodd-Frank, for all its massive girth, did nothing to address the fundamental underlying idiotic problem that brought us this last economic implosion: the social engineering wealth redistribution schemes directed at the point of a government controlled gun. In fact, all the Dodd-Frank bill does is double down on government’s power to do more social engineering with the lenders now facing nuclear tipped cruise missiles instead of the double barreled shot gun they had pointed at them before.

    But hey, this is going to make it better because the nanny state knows best.

    I don’t like the idea of empowering bureaucrats any more than you do. But as long as it comes with accountability — the ability to punish those who exceed or abuse their power — it’s the least worst alternative.

    Who is going to watch them and hold them accountable? Because they sure are not doing this to each other.

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