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How Many Regulations Should We Have?

Anthony Randazzo
June 23, 2009, 11:45am

A reader over at Reason.com asked me a question about my recent article, "The Myth of Deregulation." In that piece I suggested that, "Given all the talk of deregulation, you would expect to find dozens of deregulating laws put in place over the past few years. Surprisingly, there have only been three major deregulatory actions in the past 30 years."

In response our reader wrote:

"I was left wondering after reading the article, how many laws regulate the financial sector in USA? Stating this in the article would further strengthen your argument."

In the spirit of Boudreaux and Roberts, here is my response:

Mikko,

Thanks for your note.

It all depends on how you breakdown the "laws." For instance, mark-to-market accounting rules is a single concept, but there are dozens of rules and procedures built into that process. So that could be one law or 1,000 laws, depending on your perspective.

In general, if you consider that there are nearly a dozen major regulating agencies and offices, and nearly all of them have had decades to design rules and regulations, that you are looking at a pretty complex structure. There isn’t an economic (Austrian or Keynesian) perspective on what "too many" laws would necessarily be in number. If there were 100,000 laws would that be too many? Would a million laws be too many? Or a hundred?

The important thing to keep in mind is how any law impacts the competitive process. Does a law give certain players in the market preferential treatment over others? Do regulations create a safety net for banks so they can leverage high and depend on a government bailout? Do rules create perverse incentives for firms to try and game the system or rely on taxpayer rescues?

Regulations, in any amount, exist to provide a framework for competition to thrive. And competition includes winners and losers. Oversight rules that take this aspect out of the system are undermining its foundation. Simple logic would suggest that the more rules created, the more likely rules will skew market activity. Historical analysis backs up this theory.

Thanks for reading Reason,
Anthony

The main take away from this is that it's not necessarily the number of laws and regulations that matters as much as how those laws impact the competitive process.

Read the whole article on the history of deregulation here.


Anthony Randazzo is Director of Economic Research


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