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Mercatus scholars apply economic analysis to the issues of the day

A New Congress Must Perform Major Surgery On Dodd-Frank

by Hester Peirce on November 19, 2014

In the four years since the passage of Dodd-Frank, the financial regulators have written a lot of new rules. Throughout the implementation period, at least one of the chambers of Congress has been under the control of the party that passed Dodd-Frank. Agencies therefore have been spared some painful scrutiny of their Dodd-Frank implementation programs. This month's election changed that, and agencies are likely to face a lot more uncomfortable oversight in the upcoming Congress. But the new Congress, not as wedded to Dodd-Frank as its predecessors, could also make life more bearable for regulators by eliminating some of Dodd-Frank's extraneous statutory mandates.

The Securities and Exchange Commission is a prime candidate for mandate trimming. Dodd-Frank assigned the SEC responsibilities that are far from its core mission. For example, Dodd-Frank directed the SEC to require companies to assess and report their use of minerals tied to the violence in and...

Incentive Pay for Congress

by Eli Dourado on November 19, 2014

Most large enterprises use incentive pay like performance bonuses and stock options to better align the interests of employees, especially top managers, with those of the shareholders. To be sure, these compensation systems are often gamed, and CEOs sometimes receive a large payout even if their performance disappoints. Yet despite these imperfections, incentive pay is an indispensable tool — even startups and privately held companies, which have the strongest reasons to organize efficiently, use it extensively.

We don’t offer incentive pay to members of Congress, but perhaps we should. Like shareholder capitalism, representative government creates a principal-agent problem: no matter how much politicians wrap themselves in the rhetoric of public service, their interests are never quite our own. Voter irrationality compounds the problem — members of Congress usually do not literally enrich themselves at the expense of voters; rather, they play to voters...

Embracing a Culture of Permissionless Innovation

by Adam Thierer on November 19, 2014

“Why does economic growth… occur in some societies and not in others?” asked Joel Mokyr in his 1990 book, Lever of Riches: Technological Creativity and Economic Progress.1 Debate has raged among generations of economists, historians, and business theorists about that question and the specific forces and policies that prompt long-term growth.

As varied as their answers have been, there was at least general agreement that institutional factors mattered most—it was really just a question of what mix of them would fuel the most growth. Those institutional factors include: government stability, the enforceability of contracts and property rights, tax and fiscal policies, trade policies, regulatory policies, labor costs, educational policies, research and development expenditures, infrastructure, demographics, and environmental factors.2

...

Sidestep the FCC and the FDA

by Arnold Kling on November 19, 2014

It is difficult to imagine rapid economic growth taking place in the United States without technological innovation. Other countries can grow by catching up to existing technology, but for us it is necessary to push the frontier.

Two potential areas for rapid innovation are telecommunication and medicine. I am very concerned that these areas are regulated by the FCC and the FDA, respectively, two agencies that were established in different eras. My fear is that these agencies are culturally incapable of adapting to the environment that scientific advances have created. I have proposals for sidestepping each agency.

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Why Treasury Debt Matters More Than the End of QE

by Stephen Matteo Miller on November 17, 2014

Large markets for standardized goods tend to be impersonal. The market's ability to function depends more on the quantity and quality of goods for sale than on who buys the goods. This applies to markets for financial assets too — and it's important to keep in mind when weighing the potential effects of the current volume of U.S. Treasury debt against the impact of the Federal Reserve's decision to end quantitative easing.

Under the Fed's historic bond-buying program, the central bank purchased longer-term Treasury debt and Fannie Mae and Freddie Mac mortgage-backed securities from primary dealer banks like JPMorgan Chase and Citigroup. The Fed then paid the banks by putting credits into their accounts with the Fed, known as reserves. Increasing banks' reserves was supposed to stimulate the economy by...

Less Food Policy, Not More

by Richard Williams on November 17, 2014

The United States has created supermarkets full of the widest variety of food that has ever been available to any country. But for some, this achievement is seen as creating more problems than it solves. One suggestion, the subject of a recent Washington Post piece, suggests that we need a national food policy. Those that suggest that we need additional government programs and initiatives focused on healthy eating should consider the programs the government already has in place and the results – or lack of results – they’ve produced.

One program is the Department of Health and Human Service’s 10-year plan,
Healthy People 2020...

No Surprise Ex-Im Served Big Business

by Veronique de Rugy on November 13, 2014

Mercatus Center economist Veronique de Rugy on the Export-Import Bank's admission that it counted companies owned by billionaires including Warren Buffet and Carlos Slim among the "small businesses" it serves:

For months, I have been beating the drum about the fact that Ex-Im has been concealing handouts to large corporations under the guise of “small business lending.” Contrary to Ex-Im’s claims, the bulk of its activities aren't about helping small businesses at all. Rather, the Bank prioritizes redistributing wealth to large domestic and foreign corporations.

Today, the Ex-Im Bank made our case for us. A Bank spokesman has confirmed that the outfit misled Americans about how much money was going to small businesses. Reuters broke the story.

There are three important points to keep in mind.

First, the Ex-Im Bank was recently reauthorized for nine...

Backdoor and Backroom Regulation

by Hester Peirce on November 10, 2014

Imagine the following scenario: You run a small, heavily regulated company with a skeleton staff. One of your employees has gotten pretty adept at tracking new regulations as they are proposed and finalized. She even submits comments on proposed rules that would be particularly unworkable or costly for your firm. Much to her consternation, the agency adds to and modifies these regulatory mandates through letters, "frequently asked questions," and other guidance documents that sporadically pop up on random parts of the agency's website. Any one of these documents — perhaps one produced in response to a request by a big competitor — could contain a mandate that is wholly incompatible with your company's business model. Your employee is at wit's end, because once one of these documents shows up, there is nothing she can do about it.

This scenario plays itself out across many industries and countless regulatory agencies. But things are not supposed to work...

Mercatus Scholar: Net Neutrality Would Be a Mistake

by Brent Skorup on November 10, 2014

After the President’s announcement Monday morning on net neutrality, Mercatus research fellow Brent Skorup, who specializes in telecom issues, provided initial reaction.

“It does not require a law degree to question the wisdom of imposing eighty-year-old rules intended for the government-blessed monopoly telephone network on the competitive, dynamic Internet.

“If the FCC—an independent regulatory agency—does what the President envisions, the change will represent a stark reversal of decades of deregulatory Internet policy pursued by Congress and FCC commissioners of both political parties. The application of Title II—sometimes called utility or common carrier regulation—would result in value-destroying government oversight of the Internet. Among other damaging effects, broadband Internet would be subject to rate regulation, taxes, and fragmented regulation by state commissions.

“Further, many advocates who cheer this...

Congress Can Fix the ACA With These Three Principles

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by Charles Blahous on November 10, 2014

The Affordable Care Act presents the incoming Congress with substantive and political challenges. On the one hand its widely-acknowledged problems warrant repair, and the electorate has made its displeasure with it loud and clear. On the other hand, the whole ACA will not be repealed while there is power-sharing between a Republican Congress and a Democratic administration. Consequently this Congress will need to be very clear-sighted about what it can fix and what it cannot. 

I do not pretend to have all the answers to questions that are as much tactical as they are substantive. However, I suggest that three foundational principles guide the new Congress’s approach to the ACA.

Principle #1: Fixes should address clear substantive problems. There is no shortage of these, evidenced by the fact that the law’s sponsors...

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