Changing the regulatory debate from More-vs-Less to Good-vs-Bad

Aug 072011

The image (derived from Wikipedia Commons) is of a clay tablet that contains the prologue to Hammurabi’s Code.

The latest regulatory atrocity that made me go here is the Obama administration’s plan (now dropped, at least in this instance) to regulate pharmaceutical companies by forcing the resignation of executives it disapproves of.  (WSJ article:  “U.S. Drops Effort to Oust Forest Labs CEO”   The print edition headline was a less honest, less accurate one:  “Forest Chief Prevails Over U.S.”)

When I was a wee kid in elementary school (possibly as early as 4th grade) we learned that Hammurabi’s Code was an advance because people knew from it what the laws were and what the penalties were.    Now our leaders devise regulatory systems under which nobody can know what is required, and under which the best one can do is try to stay on the right political side of the authorities.    And this in an environment where the current administration has been willing to attack and threaten private businesses that make political statements that it perceives to be critical or contrary to its agenda.

People in our country used to understand about due process.  But now we have President who supposedly has an advanced degree in constitutional law, but who institutes a regulatory system that is about as far from any constitutional system as you can get.   And some headline writers for the WSJ don’t get it.

There is such a thing as good regulation and there is necessary regulation.  I’ve long wished that we could discuss good vs bad regulation rather than re-regulation vs deregulation.   But trying to regulate in the way Obama has tried to do here is likely to give all of regulation a bad name.

So to do my part to get the discussion back where it needs to be, I’ve instituted a new category of articles:   Hammurabi-Handedness.   That term is in part an allusion to related concepts, such as the invisible hand.    Hammurabi-Handedness refers to letting the invisible hand do its thing, but within a regulatory system that is as clear and well-defined as possible, and which minimizes waste and corruption.

Aug 052010

My comment on Katherine Hobson’s blog article at the WSJ titled, “Institute for Safe Medication Practices: Drug Shortages ‘Unprecedented’

Since the author had a chance to talk to this Michael Cohen, I wish she would have asked more questions about this “authority” that he thinks the FDA should have. Who would be compelled to do what? Who is supposed to be responsible to whom for a “plan?” After all, it’s not clear how a “plan” could help with any of the causes that the article lists. There are a whole lot of unanswered questions that need answers before we think about giving the FDA more power; otherwise it’s just another power grab.

Jun 152010

WSJ headline: “U.S. to Demand BP Fund

That is an inaccurate headline, of course. It’s the Obama administration that’s asking for it, not the U.S. The U.S. has laws against extortion. A better headline is a small blurb on the same page on which the misleading one appeared: “The White House plans to ask BP for a damage fund.”

If there is such an escrow account, though, who would keep the money for safekeeping and administer it? The Obama administration is not eligible, because its policy of nationalizing any industry within reach creates a conflict of interest.

The British government also has a conflict of interest.

The United Nations? The money would be gone in a day if deposited there.

Here are my three nominees:

  • The government of Ireland. The Irish have no great love for the Brits or for America, but get along reasonably well with both.
  • The government of the Czech Republic. Václav Klaus can be trusted not to be easily intimidated.
  • The government of Georgia. This would help focus more attention on a country that needs it. And Georgia would have great motivation not to mess up.
May 122010

Amazing lead paragraph by Kara Scannell and Fawn Johnson at the WSJ. It’s in an article titled, “Schapiro: Web of Rules Aided Fall.”

Regulators haven’t found evidence of a single cause for the May 6 stock-market plunge, but the lack of unified rules among stock exchanges played a role, Securities and Exchange Commission Chairman Mary Schapiro said Tuesday.

There is not a single sentence in the entire article to explain how a “lack of unified rules among stock exchanges” could have played a role. I suppose mere reporters don’t get to ask questions at a congressional hearing, but surely they should have reported on how the congressional committee members let that comment go by without a word of explanation. Or perhaps there was an explanation, in which case Scannel and Johnson should have told us about it.

Why make a big deal out of this? Well, I am skeptical that a lack of unified rules could have caused a lack of stability. It’s just not the way large, complex systems usually work. Usually there is stability in diversity, not in uniformity.

I tend to think of the parallels between economic systems and biological ecosystems. Note how the headline used the word “web.” Webs are usually good for stability. If this is a rare exception, it would be worth knowing about it.

Apr 292010

We could call it the O.J. Senate.    Just as O.J. Simpson combed the Florida golfcourses looking for the real killer of Nicole Brown Simpson, Carl Levin has hauled Goldman Sachs into a Senate hearing room so he can look for the real villains in the financial meltdown.   (His office can’t be that far away from Chris Dodd’s and Barney Frank’s, can it?)

Apr 182010

President Obama says he will veto any financial reform bill that doesn’t bring the derivatives market under control. If he really meant that, he would have vetoed the recent health bill.

Derivatives are a problem in that they obscure what it is a purchaser owns. It’s hard to know how to value them, which makes it difficult for buyer, seller, and regulator. They create opportunities for market distortions.

The same is true of the health care bill. Supposedly there is some pie in the sky that’s going to repay the investment of higher taxes that we’ll be making. But it’s all so vague — it’s hard to connect value and payments in any accountable way. The health care plan should have been subject to the same scrutiny and controls (and perhaps prohibitions) that are needed in the securities market.

Feb 082010

It wasn’t just the Community Reinvestment Act that got us into this mess.

The problem wasn’t merely that HUD under Mr. Cuomo was raising the volume of risky loans for which taxpayers were guaranteeing. HUD was also encouraging a dangerous decline in underwriting standards at these government-sponsored enterprises (GSEs). Says former Fannie Mae chief credit officer Edward Pinto, “HUD commissioned much research aimed at forcing the adoption of more flexible lending standards by the GSEs.”

WSJ article, “Prosecutor, Charge Thyself : Andrew Cuomo has more to answer for than does Bank of America.”

Feb 052010

This is corruption. No possible good can come from a meeting between the chief regulator and the CEO of one of the companies being regulated. This is not how regulation is supposed to work. This is just an opportunity for political pressure and political concessions.

Either the cars have defects or they don’t. A meeting behind closed doors between the CEO of Toyota and a representative of Public Motors is not going to establish any facts. It’s not going to make cars any safer. The regulatory process needs to be transparent and objective, and not dependent on two guys talking nice to each other or tough to each other.

Does a public prosecutor want to meet one on one with the mafia godfather before deciding whether or not to prosecute? Does a public prosecutor want to meet one on one with the local representative of Angels of Mercy before deciding whether or not to prosecute There are proper ways of conducting interrogations. What LaHood is doing is not one of them.

Transportation Secretary Ray LaHood said Wednesday his agency is widening its probe of sudden acceleration complaints in Toyota Motor Corp. vehicles to look at the possibility of electromagnetic interference with electronic throttle systems, and said he wants to talk directly with company Chief Executive Akio Toyoda.

URL here.

What if a company like Toyota actually develops a safety problem with its cars someday, and somebody gets killed? The blood will be on the hands of the Obama administration. The government is supposed to be an honest regulator and is supposed to provide information on such things to the public, and to keep unsafe cars to go uncorrected. But now that it has a huge conflict of interest, there is no basis for the public to believe anything it says or does in the way of safety regulation. We still have the usual workings of the market to help us, but we’re deprived of a source of information we used to have. Obama took it away when he instituted the public automotive option.

What LaHood is doing is tearing down any residual shreds of confidence we may still have had that the government could be an honest regulator in spite of its huge conflict of interest.

Feb 012010

“Building codes disenfranchise young people. Give me a break.”

That’s what one of Paul Jacob’s commenters replied in response to his article, “Who Killed Disco.” The guy didn’t mean to, but he provided a nifty five-word summary of an all-too-real phenomenon.

My own comment after reading some of the other comments:

It seems there are some people for whom is is not so important that people are safe, but for whom it is very important that we have government regulations that require safety. It’s an interesting psychological phenomenon.