In examining the reforms under consideration, first, I will discuss why regulatory accumulation is a public policy problem: regulatory accumulation creates substantial drag on economic growth by impeding innovation and entrepreneurship.
When the Dodd-Frank Act was being developed, one issue under consideration was whether the Board should lose some of its regulatory powers in view of its poor regulatory performance prior to the crisis. Instead, Dodd-Frank substantially increased the Board’s regulatory powers. One of the most important new powers is the authority to regulate nonbank financial institutions designated systemically important by the Financial Stability Oversight Council. So far, General Electric Capital Corporation, American International Group, and Prudential have been so designated, with additional entities likely to follow. These financial institutions will present the bank-focused Board with new regulatory challenges. It is important that the Board respond with well-vetted, tailored regulations that recognize that these entities are not banks and cannot be effectively regulated as if they were.
Despite Washington’s recent focus on the disastrous Affordable Care Act website rollout, policymakers are missing what the rollout glitches symbolize: the fundamental flaws that imbue government intervention. The work of public choice economists such as Nobel laureate James Buchanan, Gordon Tullock, Mancur Olson, and William Niskanen has shown that, despite good intentions and lavish use of taxpayer resources, government solutions are not only unlikely to solve most of our problems—they often make problems worse.
Chairman Schweikert, Ranking Member Clarke, and members of the Subcommittee, thank you for the opportunity to be part of today’s hearing on regulatory burdens on small financial institutions. In financial services, as in every other sector, the United States is not a one-size-fits-all nation. Financial institutions of all different sizes coexist, and customers choose among them based upon their needs. A regulatory environment that is increasingly unwelcoming to small financial institutions may curtail customer choice.
We are ultimately advocating not for Bitcoin, but for innovation. It is important that policymakers allow this experimentation to continue. Policymakers should work to clarify how Bitcoin is regulated and to normalize its regulation so that we have the opportunity to learn just how innovative Bitcoin can be.
The enormous amount of regulation generated each year and the huge potential for improving it could provide enormous net benefits to society. A strong watchdog agency is needed to provide the transparency and checks and balances needed to set priorities for high-impact regulations.
In addition to rebuilding OIRA’s technical staff and enhancing its voice in policy debates with the agencies, several other more subtle steps should be considered by the administrator.
Chairman Blumenthal, Ranking Member Hatch, and members of the committee, thank you for inviting me to testify today. I am an economist and senior research fellow at the Mercatus Center at George Mason University, a 501(c)(3) research, educational, and outreach organization in Arlington, Virginia. My primary research focuses on the regulatory process and how it could be improved, so I am delighted to testify on today’s topic.
Chairman Jordan, Ranking Member Cartwright, and members of the Subcommittee, thank you for the opportunity to be part of today’s hearing on the effect of Dodd-Frank on community banks. Dodd-Frank was the product of desperation in the face of a deeply painful financial crisis and outrage at the big financial institutions that were at the center of the trouble. Not only does Dodd-Frank fail to effectively address the problems that precipitated the crisis, but it also imposes costly burdens on many businesses that were not central causes of the crisis. Among these are community banks.
The best way to avoid forcing low-income households to pay for the preferences of high-income households is to allow them to make their own choices when it comes to the mitigation of risks they experience. Unintended consequences of regulation, like the regressive effect identified here, will often result in greater harm than the harm the regulation seeks to avoid in the first place. Regulators should heed the medical ethics maxim “first, do no harm” and at a minimum subject all regulation to a cost-benefit test that considers potential regressive effects.
The F. A. Hayek Program for Advanced Study in Philosophy, Politics and Economics at the Mercatus Center hosted a panel discussion featuring Benjamin Powell and his new book, Out of Poverty: Sweatshops in the Global Economy.
The Mercatus Center at George Mason University invites you to join Todd Zywicki, Senior Scholar and Senior Fellow with the F.A. Hayek Program at the Mercatus Center and Ted Gayer, Vice President and Director of the Economic Studies program at the Brookings Institution for a Regulation University program that examines the mistakes agencies make in developing “nudge” regulations and the unintended, but foreseeable, consequences of those mistakes.
Please join us for a casual reception where you can take a break from March Madness and meet some of our scholars who can provide the kind of practical information you need to be most effective in your work.
This book provides a comprehensive defense of third-world sweatshops. It explains how these sweatshops provide the best available opportunity to workers and how they play an important role in the process of development that eventually leads to better wages and working conditions.