Tuesday, January 18, 2011

President Obama On Government Regulation

Since President Obama took office there has been a lot of discussion around how the governement should or shouldn't regulate certain aspects of the financial markets, among other things. Economist, Mark Thoma, takes a look at a recent article published by Obama, and offers his thoughts below:

President Obama on regulation:

Toward a 21st-Century Regulatory System, by Barak Obama: For two centuries, America's free market has ... been the greatest force for prosperity the world has ever known. ...

But throughout our history, one of the reasons the free market has worked is that we have sought the proper balance. We have preserved freedom of commerce while applying those rules and regulations necessary to protect the public against threats to our health and safety and to safeguard people and businesses from abuse.

From child labor laws to the Clean Air Act to our most recent strictures against hidden fees and penalties by credit card companies, we have, from time to time, embraced common sense rules of the road that strengthen our country without unduly interfering with the pursuit of progress and the growth of our economy.

Sometimes, those rules have gotten out of balance, placing unreasonable burdens on business... At other times, we have failed to meet our basic responsibility to protect the public interest, leading to disastrous consequences. Such was the case in the run-up to the financial crisis...

There, a lack of proper oversight and transparency nearly led to the collapse of the financial markets and a full-scale Depression.

Over the past two years, the goal of my administration has been to strike the right balance. And today, I am signing an executive order that makes clear that this is the operating principle of our government.

This order requires that federal agencies ensure that regulations protect our safety, health and environment while promoting economic growth. And it orders a government-wide review of the rules already on the books to remove outdated regulations that stifle job creation and make our economy less competitive. ...

Where necessary, we won't shy away from addressing obvious gaps: new safety rules for infant formula;... efforts to target chronic violators of workplace safety laws. But we are also making it our mission to root out regulations that conflict, that are not worth the cost, or that are just plain dumb. ...

And finally, today I am directing federal agencies to do more to account for—and reduce—the burdens regulations may place on small businesses. ...

Despite a lot of heated rhetoric, our efforts over the past two years to modernize our regulations have led to smarter—and in some cases tougher—rules to protect our health, safety and environment. Yet according to current estimates of their economic impact, the benefits of these regulations exceed their costs by billions of dollars. ...

Regulations do have costs; often, as a country, we have to make tough decisions about whether those costs are necessary. But what is clear is that we can strike the right balance. ...

There will now be a rush of lobbyists explaining to Congress and agency heads that the regulations the industries they represent face are excessive and need to be removed. There will be no shortage of effort in this direction. At the same time, a similar effort will be devoted to opposing any new regulation.

We need tougher, better regulation in many areas, and I'm sure there's a bad regulation to be found as well. But if the administration is going to move in this direction, it had better be prepared to match the effort it is up against. If it doesn't -- if special interests succeed in swaying the process in their direction -- we"ll end up as far from the "the right "balance" as ever. I hope the administration realizes that this is not an effort it can take lightly with a sweeping proclamation for action that attempts to straddle the political fence. To make this work, the administration will need to do the hard work needed to lead this process forward and guide it to a satisfactory end.

This article was republished with permission from The Economist's View Blog.

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