The Regulation Crisis
Hat tip to Mark Thoma for pointing us to The Regulation Crisis by James Surowiecki.
The obvious problems of graft and the revolving door between government and industry, in other words, were really symptoms of a more fundamental pathology: regulation itself became delegitimatized… This view was exacerbated by the way regulation works… Too many regulators, for instance, are political appointees, instead of civil servants. This erodes the kind of institutional identity that helps create esprit de corps, and often leads to politics trumping policy. Congress, meanwhile, often takes a famine-or-feast attitude toward funding, allocating less money when times are good and reinflating regulatory budgets after the inevitable disaster occurs. … This … also contributes to the sense that regulation is something it’s O.K. to skimp on.
[T]he history of regulation both here and abroad suggests that how we think about regulators, and how they think of themselves, has a profound impact on the work they do. … So reforming the system isn’t about writing a host of new rules; it’s about elevating the status of regulation and regulators. More money wouldn’t hurt: as … George Stigler and Gary Becker point out, paying regulators competitive salaries … would attract talent and reduce the temptations of corruption. It would also send a message about the value of what regulators do. That’s important… If we want our regulators to do better, we have to embrace a simple idea: regulation isn’t an obstacle to thriving free markets; it’s a vital part of them.
I suggest we look at how to get retired folks from the financial services industry into regulatory positions. Perhaps we can give them the ability to sell their company stock and reinvest like Paulson got. The best regulators in many respects would be those who knew the ropes, and if you worked to fix the conflict of interest, caused by share holdings, i.e. you can hold index funds only. Change the career path from learn the ropes at the regulator, then to the bank to get around the rules to the other way. (Perhaps today they could work at home, no need to have them all in one city, electronics takes care of that. )
The article said: “…the revolving door between government and industry,…” and Lyle said: “..how to get retired folks from the financial services industry into regulatory positions….”
Lyle is far closer to reality. If you wish to hire experienced workers (regulators or not) you get them from the indistry pool. Has always been so. The pool is always deeper at the private end than the public, and mixing is just natural. This is especially true for local Govts.
I don’t see JS suggesting otherwise Corev. But regulatory agency culture can take many forms, and in some forms cultural capture (private and particular interests predominates, where the profit center of even particular companies takes precedence over the overall good of the country). Big private companies have bureacratic cultures that need tending as well to make them work toward the intended goal.
I agree, Dan. Just pointing out the apparent dichotomy between the common narrative (revolving door) and the reality of where else do we get experienced regulators (or employees in general). JS is actually reinforcing the reality-based view.
How about freezing federal employee salaries for 10 years? Eric Cantor votes yes.
lol sure it’s not like they can hire lobbyists.
Dan, sure! But, I’m not sure what freezing Fed salaries for that long accomplishes.
Freezing Congress critters’ salaries is also a good idea.
In May FY2010 deficit is estimated to exceed $1.5T with Total expenditures $3.552 trillion (estimated FY2010 budget). This article: http://useconomy.about.com/od/usfederalbudget/p/FY2010_Discretionary_Budget.htm says: “Discretionary spending in Fiscal Year (FY) 2009 was $1.2 trillion, or 35% of total spending. More than half ($782 billion) was what the OMB calls Security spending: Department of Defense and Homeland Security.”
So similar drops in a bucket: cutting, salaries, pork, a salami slice cut of a couple of percentage points across the discretionary budget, etc gets us nowhere if we are trying to balance the budget.
I’m not sure that we haven’t already passed a tipping point, wherein a whole generation will be needed to pay down the debt, or get back into a near balanced budgetary position.
The left of center wannabees wanted him and his borrow and spend policies. Now, we all must live with him, at least for a little longer.
Dan, sorry for the rant, but it is so demoralizing listening to all the political nonsense from both sides. It’s going to take a monumental effort to fix a monumental problem.
There must be places where regulation is treated with respect and supported accordingly, no?
We have all these corporate “Best Practices” programs; there must be some that exist for more than Scott Adams source material.
There are nations like Singapore, widely regarded as meritocracies, where civil service jobs are hard to get, and highly respected, no? Are Americans so nationalistic that we can’t study others’ systems, so we’re stuck at Zimbabwean levels of corruption and kleptocracy?
You assume there is a current deficit crisis for the federal government. I do not. But is the federal gov. nimble enough to do the right thing? Given the politics of economic nonsense probably not.
Dan, I didn’t call it a crisis, but at what point beyond the current rate of 1 of 3 dollars spent by our Fed Govt that is borrowed, do we reach that stage? It can not continue. The word is unsustainable.
Most things are unsustainable as they are projected given the assumptions of no change. We have some hard decisions to make when the economy picks up. How is a matter of planning, and then seeing if there is the political nimbleness to actually get a plan passed. We seem to careen around a lot.
No matter what it will be quite messy I believe given the way things get done. Maybe a list might start a conversation. Any plan seems to have groups yelling how their parts should be exempt, including banks (ie Freddie Mac toxic loans) as legally required but not happening.
Hence any planning is messy beyond belief.
An excellent example happened not that long ago here. Bill Clinton appointed James Lee Witt head of FEMA, a man who knew disaster management well–then made his position a cabinet position, giving him direct access to the Pres. He did a fantastic job. He got the power and the prestige needed to move things around, and it was enormously effective.
“There must be places where regulation is treated with respect and supported accordingly, no?”
Those are likely the same places where the elected representatives of the citizens of those places actually represent the best interests of all the citizens rather than the financial interests of a very small, but very wealthy, number of those citizens. I don’t know where those places are, but it’s pretty clear that this place (country) is not one of them.