Over-regulated America
The home of laissez-faire is being suffocated by excessive and badly written regulation
AMERICANS love to laugh at 140,000. There are nine codes relating to injuries caused by
.t'\..ridiculous regulations. A parrots, and three relating to burns from flaming water-skis.
Florida law requires vending- Two forces make American laws too complex. One is humachine
labels to urge the pub- bris. Many lawmakers seem to believe that they can lay down
lie to file a report if the label is rules to govern every eventuality. Examples range from the
not there. The Federal Railroad merely annoying (eg, a proposed code for nurseries in ColoraAdministration
insists that all do that specifies how many crayons each box must contain) to
trains must be painted with an the delusional (eg, the conceit of Dodd-Frank that you can an"
F" at the front, so you can tell which end is which. Bureaucrat- ticipate and ban every nasty trick financiers will dream up in
ic busybodies in Bethesda, Maryland, have shut down chil- the future). Far from preventing abuses, complexity creates
dren's lemonade stands because the enterprising young mop- loopholes that the shrewd can abuse with impunity.
pets did not have trading licences. The list goes hilariously on. The other force that makes American laws complex is lob-
But red tape in America is no laughing matter. The problem hying. The government's drive to micro manage so many activis
not the rules that are self-evidently absurd. It is the ones that ities creates a huge incentive for interest groups to push for spesound
reasonable on their own but impose a huge burden col- cial favours. When a bill is hundreds of pages long, it is not
lectively. America is meant to be the home of laissez-faire. Un- hard for congressmen to slip in clauses that benefit their
like Europeans, whose lives have long been circumscribed by chums and campaign donors. The health-care bill included
meddling governments and diktats from Brussels, Americans tons of favours for the pushy. Congress's last, failed attempt to
are supposed to be free to choose, for better or for worse. Yet regulate greenhouse gases was even worse.
for some time America has been straying from this ideal. Complexity costs money. Sarbanes-Oxley, a law aimed at
Consider the Dodd-Frank law of 2010.1ts aim was noble: to preventing Enron-style frauds, has made it so difficult to list
prevent another financial crisis. Its strategy was sensible, too: shares on an American stockmarket that firms increasingly
improve transparency, stop banks from taking excessive risks, look elsewhere or stay private. America's share of initial pubprevent
abusive financial practices and end "too big to fail" by lie offerings fell from 67% in 2002 (when Sarbox passed) to 16%
authorising regulators to seize any big, tottering financial firm last year, despite some benign tweaks to the law. A study for
and wind it down. This newspaper supported these goals at the Small Business Administration, a government body, found
the time, and we still do. But Dodd-Frank is far too complex, that regulations in general add $10,585 in costs per employee.
and becoming more so. At 848 pages, it is 23 times longer than It's a wonder the jobless rate isn't even higher than it is.
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. Just one bit, the "Volcker rule", which aims to curb
risky proprietary trading by banks, includes 383 questions that
break down into 1,420 subquestions.
Hardly anyone has actually read Dodd-Frank, besides the
Chinese government and our correspondent in New York (see
pages 22-24). Those who have struggle to make sense of it, not
least because so much detail has yet to be filled in: of the 400
rules it mandates, only 93 have been finalised. So financial
firms in America must prepare to comply with a law that is
partly unintelligible and partly unknowable.
Flaming water-skis
Dodd-Franl< is part of a wider trend. Governments of both parties
keep adding stacks of rules, few of which are ever rescinded.
Republicans write rules to thwart terrorists, which make
flying in America an ordeal and prompt legions of brainy migrants
to move to Canada instead. Democrats write rules to expand
the welfare state. Barack Obama's health-care reform of
2010 had many virtues, especially its attempt to make health
insurance universal. But it does little to reduce the system's
staggering and increasing complexity. Every hour spent treating
a patient in America creates at least 30 minutes of paperwork,
and often a whole hour. Next year the number of federally
mandated categories of illness and injury for which
hospitals may claim reimbursement will rise from 18,ooo to
A plea for simplicity
Democrats pay lip service to the need to slim the rulebook-Mr
Obama's regulations tsar is supposed to ensure that new rules
are cost-effective. But the administration has a bias towards
overstating benefits and underestimating costs (see page 77).
Republicans bluster that they will repeal Obamacare and
Dodd-Frank and abolish whole government agencies, but give
only a sketchy idea of what should replace them.
America needs a smarter approach to regulation. First, all
important rules should be subjected to cost-benefit analysis by
an independent watchdog. The results should be made public
before the rule is enacted. All big regulations should also come
with sunset clauses, so that they expire after, say, ten years unless
Congress explicitly re-authorises them.
More important, rules need to be much simpler. When regulators
try to write an all-purpose instruction manual, the
truly important dos and don'ts are lost in an ocean of verbiage.
Far better to lay down broad goals and prescribe only what is
strictly necessary to achieve them. Legislators should pass
simple rules, and leave regulators to enforce them.
Would this hand too much power to unelected bureaucrats?
Not if they are made more accountable. Unreasonable
judgments should be subject to swift appeal. Regulators who
make bad decisions should be easily sackable. None of this
will resolve the inevitable difficulties of regulating a complex
modern society. But it would mitigate a real danger: that regulation
may crush the life out of America's economy. •
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