Economist Magazine Runs Fact-Challenged Frontal Assault on Regulation
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Last week, the Economist published a series of articles on the impact of regulations on the US economy and businesses. For a magazine normally regarded for insightful analysis, the poor quality of these articles is surprising. They represent more of an ideological treatise than a critical assessment of arguments offered by different sides of the debate and their supporting evidence.
In the opening introductory article, “ Over-regulated America,” the writers argue that the economy is severely hobbled by an excessive number of regulations, and overly complex legislation written by Congress. The article claims two fundamental causes. First, legislators have the “hubris” to lay down rules attempting to govern every eventuality. Second, in so doing, they create huge incentives for industry to push for endless special exemptions.
While it is undoubtedly true that there are problems with the regulatory system, this line of reasoning is naïve at best. It understates industry’s role in the legislative process, and neglects the deceitful way in which opponents are framing the issue. Separately, the articles are short on facts (…and long in fiction), and lack sophistication with regards to the inherently complex nature of regulation and the important role of specialization in society.
Industry’s role and disingenuous attacks
The Economist should be commended for acknowledging the significant role of industry lobbying, but it understates that role. Take its “supporting” example of legislation regulating financial market excess:
- “[R]ed tape in America is no laughing matter...Consider the Dodd-Frank law of 2010. Its aim was noble: to prevent another financial crisis…But Dodd-Frank is far too complex…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.”
The Economist stopped short of its own diagnosis.
As the New York Times and the Huffington Post write, the Volcker rule was a relatively straightforward concept that expanded into reams of pages due to industry exemptions. Its goal was to restrict banks from earning profits by speculating on assets with taxpayer-insured deposits. The Post sums it up nicely: “The Volcker Rule in its purest form is an elegant and simple way to restore the firewall between commercial and investment banking created by the passage of the Glass-Steagall Banking Act of 1933.” The Economist laments the length of Dodd-Frank’s Volcker Rule, without discussing one of the two principle causes it offers for explaining the complexity of legislation—industry lobbying.
More fundamentally, the article is naïve in suggesting industry enters the game in response to legislator hubris. It is there before pens even hit paper, starting with the generous campaign contributions, and the effects of Citizens United, that influence who gets elected. Those who “help out” the most then get a corresponding number of seats at the drawing table.
Even still, the bill has some teeth, and industry is furiously fighting back to knock them out. With Dodd-Frank, the chickens finally came home to roost after decades of industry lobbying preventing meaningful regulation of an increasingly complex financial system. Unfortunately, it took a disaster to make the legislation possible.
In its other “supporting example,” the Economist contradicts itself, adopting the opposition’s position that the Environmental Protection Agency (EPA) should treat different forms of power plant pollution separately under different provisions of the Clean Air Act—apparently the complexity of the Clean Air Act makes sense to them in this context. It endorses industry’s stance by accepting the argument that the Environmental Protection Agency (EPA) should exclude from its cost-benefit analysis of the Mercury and Air Toxics Standard the benefits of reducing particulate matter, pollution responsible for many premature deaths, heart attacks and asthma attacks.