By Michael Hendrix, Research Manager
According to The Economist, “The home of laissez-faire is being suffocated by excessive and badly written regulation.” The point is not that America has an overwhelming amount of bad regulation, though the examples of such ill-guided red tape are numerous. Rather, it is the cumulative effect of regulation that is chocking American free enterprise.
Dodd-Frank is a prime example. It’s a complex bill layered on top of an already complicated industry. ”At 848 pages, it is 23 times longer than Glass-Steagall, the reform that followed the Wall Street crash of 1929. Worse, every other page demands that regulators fill in further detail. Some of these clarifications are hundreds of pages long.”
Downloading the text of the Dodd-Frank bill yields a PDF file some 2,319 pages in length. By way of comparison, our NCF Fellow Mark Perry produced a handy list of the top financial reform bills and their length:
- Federal Reserve Act (1913) – 31 pages.
- Glass-Steagall Act (1933) – 37 pages.
- Interstate Banking Efficiency Act (1994) – 61 pages.
- Gramm-Leach-Bliley Act (1999) – 145 pages.
- Sarbanes-Oxley Act (2002) – 66 pages.
The quantity and complexity of America’s regulatory regime not only adds a burden of cost onto the private sector but a broader sense of uncertainty (which itself is costly). Back to the Dodd-Frank example, The Economist notes how only 93 of the 400 mandated rules have actually been issued, leaving the financial sector to comply with a law that will remain partially unknown for an equally unclear amount of time.
Dislodging America from its thicket of regulation is first a matter of reducing the number of rules. Arcane procedures and entrenched interests means that this process won’t be easy, as The Economist shows in a follow-on article. There’s also the danger that cuts will be imprecise and uninformed, like calling for field surgery with a machete. This is why transparency will be vital. Cutting regulation needn’t be as opaque as the process that made them.
Reducing red tape is a good first step. But we must also take another look at the mindset behind the regulatory process. Recent studies argue against the increasing specificity of rule-making in America. Instead, if an area due for regulation is highly complex, the matching regulation ought to be decisively simple. Dynamic, wealthy economies are necessarily complex — so the overall regulatory regime in such countries should be straightforward and highly adaptive to changing circumstances.
Put another way, a lean and simple regulatory regime is the perfect complement to a healthy economy.