Obama still doesn't understand regulation



It’s a relief President Obama, in an Op-Ed in today's Wall Street Journal, acknowledges that the free market is “the greatest force for prosperity the world has ever known.” It certainly is.

The President now says there are some rules “that are just plain dumb” and he’s going to “remove outdated regulations that stifle job creation.” I hope he means it. But even if a president does want cutback, it won’t be easy. Managing regulatory bureaucracy is like pushing string. Regulators want to regulate. Just last year, federal bureaucrats alone added 80,000 pages of brand new rules.

It’s intuitive to believe regulation protects us and makes commerce fairer. I once believed that. But then I became a consumer reporter and I watched regulation fail. Now I know it almost always does more harm than good.

In his Op-Ed, the President praises “common sense rules” like child labor laws and “our most recent strictures against hidden fees and penalties by credit card companies.” But what he calls “common sense” has unintended consequences. Stopping credit card companies from imposing penalties on customers who pay late didn’t make those costs disappear.

Since the politicians “protected” us, credit card interest rates rose nearly 2% ... while other interest rates dropped. JPMorgan Chase simply cut off 15% of its customers. Those who want credit will now have to go to pawn shops or payday lenders that charge annual interest of more than 200%. How does that help poor people?

Child labor laws passed to protect children from dangerous factories now keep strapping teenagers out of air-conditioned offices. Labor Department rules are so onerous that businesses that could legally employ teens often don’t. Wendy's won’t even consider hiring anyone younger than 16 because the regulations require time-consuming record keeping, and carry the risk of a big fine. It's “safer” just not to hire young people. How does that help kids?

My friend Sheldon Richman, editor of The Freeman, helped convince me that almost all regulations are unnecessary. In this article, he points out that politicians always say:

“We need more regulation. When free-market advocates point out that the problems were caused by government’s systematic and deliberate weakening of market discipline in order to promote corporate profits through home ownership regardless of income or creditworthiness, the other side seems to want to say, “If we have proper regulation, we don’t need market discipline."

But chanting “regulation” and “oversight” is not a solution to anything... Even if we assume the regulatory body would be populated by honest, disinterested people (a wild assumption, we should realize by now), how would they know what to do? As noted, markets are complex beyond imagination... Sitting in an ivory tower and writing regulations for a complex market is a recipe for stagnation…

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