The idea that regulators can be captured by the industries they regulate, or even by other interest groups, is central to modern regulatory analysis. It is the foundation for the theory of regulatory failure, which itself is a response to the idea that regulation is necessary to counteract market failure. Many believe that the...
An earlier post referred to the past prestige of the SEC as an example of the kind of regulator that could reduce the incidence of industry capture through its prestige and strong leadership. The SEC has been in the news this week as the Congressional conference committee works through the financial reform package, and...
One of my favorite commentators and the coauthor of one of the most important books on the recent financial crisis, James Kwak, has just posted a profound and timely addition to his blog. He notes the developing interest in behavioral economics and the importance of understanding irrationality in decisionmaking, most prominently by my pathbreaking...
A thoughtful but scary post by Charles Hugh Smith this afternoon demonstrates the amazing parallels in the corporate, government and public reactions to the financial crisis as triggered by the collapse of Lehman, on the one hand, and the Deepwater Horizon catastrophe in the Gulf. 1. The extreme levels of inherent risk in each system...
There was a time when we worried that concentrations of economic power would destroy competition and even distort the political process. Yet despite the fact that such distortions are in fact occurring in the financial arena, for one, we seem either less concerned or less aware of the problem than when antitrust enforcement was...
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