Obama must ensure regulatory balance

We applaud President Barack Obama's executive order to restore “balance” to federal regulation and weed out rules that stifle job creation and make the U.S. economy less competitive
JAN 23, 2011
We applaud President Barack Obama's executive order to restore “balance” to federal regulation and weed out rules that stifle job creation and make the U.S. economy less competitive. At the same time, we concede that the order, titled simply “Improving Regulation,” will go down in history as largely symbolic — unless, of course, Mr. Obama is willing to revisit, and possibly even eliminate, some of the rules and regulations passed last year in the wake of the financial crisis. So far, that appears unlikely. Mr. Obama's executive order doesn't apply to many of the federal agencies that, by design, are largely independent of the White House and Congress. These include many charged with drafting and enforcing rules for banks and other financial institutions under the sweeping Dodd-Frank reform law, including the Commodity Futures Trading Commission, the Federal Deposit Insurance Corp., the Federal Reserve and the Securities and Exchange Commission. In fact, as Mr. Obama was stepping up his pro-business agenda last Tuesday, members of the Financial Stability Oversight Council were busy making plans to designate certain financial organizations “systemically important” and to hold them to more stringent government regulation. Of course, not all the rules and regulations associated with Dodd-Frank are unnecessary. Rules intended to protect investors from fraud, for example, should be written and enforced vigorously. So should rules that would require brokers and registered investment advisers to act in their clients' undivided best interests at all times. That said, rulemaking isn't cheap. During the fiscal year ended Sept. 30, federal agencies regulating all aspects of the economy issued 43 major rules, according to The Heritage Foundation's analysis of data released by the Government Accountability Office. The price tag for those rules was estimated at some $28 billion, the highest level since at least 1981, the earliest year for which figures are available, the research organization said. For proof that overregulation is making the U.S. less competitive, look no further than the 2011 Index of Economic Freedom released recently by The Heritage Foundation and The Wall Street Journal. Of the world's 20 largest economies, the U.S. ranked ninth with a “Freedom Score” of 77.8, down from eighth last year, when it scored 78 on the 0-to-100 scale. According to the index, the U.S. is now less economically free than Hong Kong, which ranked first, Singapore, Australia, New Zealand and Switzerland, among other countries. Mr. Obama should make sure that all financial regulations, including those mandated by Dodd-Frank, are subjected to the same level of scrutiny and cost benefit analysis that are afforded to regulations intended to protect our safety, health and environment. We encourage Mr. Obama and his appointees to be relentless in their efforts to weed out excessive, inconsistent and redundant financial regulations. If necessary, Congress should resort to a “technical-corrections bill” to make small changes to the law. No matter what, regulators need to take the time to hear expert advice on how Dodd-Frank should be implemented so as to avoid stifling the financial markets and significantly raising the cost of capital. Creating a 21st century regulatory system is a noble endeavor and one that, if successful, will earn Mr. Obama a place in history as one of the most ambitious and politically astute presidents. But much depends on whether a thorough review of the rules and regulations governing the American financial system and economy are included in that endeavor and if extraneous or damaging regulation is eliminated.

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