America’s 30-year experiment with radical economic deregulation

In a 2008 piece in the Financial Times, Congressman Barney Frank, Chairman of the House Financial Services Committee, opined that the financial collapse was clearly an indictment of “America’s 30-year experiment with radical economic deregulation.” Leaving aside Congressman Frank’s diagnosis, it is worth considering briefly the question of deregulation. There is no better guide than the Regulators’ Budget Report produced by the Weidenbaum Center (Washington University, St. Louis) and the Regulatory Studies Center (George Washington University).

Some points worth reviewing:

  • Despite the above quote, during the period 1980 -2010,  regulatory budgets (expressed in 2005 dollars to adjust for inflation) increased from $15.3 billion to $50.4 billion. In short, they more than tripled, greatly outpacing the growth in GDP.
  • What of the presidency of George W. Bush? Between the year Bush entered office (2000) and the year he  left office (2009), inflation adjusted spending increased from $28.7 billion to $46.3 billion.
  • Ah yes, but didn’t Bush starve the financial regulators, hence the crisis? Once again, we have an ugly fact that slays a beautiful theory. Under Bush’s watch, financial and banking regulatory budgets increased (once again, in inflation adjusted terms) from $2.2 billion to $2.6 billion.

It is too early to make a judgment of how the Obama administration will perform relative to its predecessors, but the 2011 requests ($52.5 billion) are well above the levels he “inherited ($46.3 billion).

Adjusted for inflation, the proposed regulatory budget for 2011 would be 343 percent greater than when Reagan was elected. So much for a “30 year experiment in radical deregulation.”

Read the Regulators’ Budget. Like Pileus, it’s free,  informative, data driven and remarkably free of invective.

4 thoughts on “America’s 30-year experiment with radical economic deregulation

  1. A great recommendation; thanks for posting. A question, though, Marc. While overall regulatory budgets is certain telling, what is also telling is where and how money is being spent, not just how much is being spent. One act of “deregulation” that many people point to is the 1999 Financial Modernization Act, which finally repealed the last vestiges of the Glass-Steagall restrictions that had prevented banks from also dealing in insurance and securities. Some people claim that led to conflicts of interest that encouraged undue risk taking (like having mortgage-backed securities), which in turn helped precipitate the subprime mortgage crisis.

    What do you think?

  2. I don’t find the argument too persuasive. Due to the large quantity of M&As in the past decade, the Glass Steagall firewalls were already pretty porous. The 1999 Act in some ways formalized what had already occurred incrementally while retaining functional regulation.

    Was there undue risk taking? Absolutely. But I would not attribute it primarily to the Financial Modernization Act.

  3. Wouldn’t it be more revealing to compare the increase in regulatory budgeting over the last 30 years against the growth of the economy as a whole during that period? If regulatory budgeting doubled, for example, but GDP grew by ten times, wouldn’t that mean that regulation has not kept pace, even though spending on it may have increased significantly?

    I’m not even close to an economist, it’s just something that occurred to me while reading your post. I enjoy the blog a great deal, btw.

  4. And then I re-read the first bullet point and see that you already addressed that.

    Guess I don’t know much about GDP, because I would have expected a much bigger increase during that time based on the explosion in the stock market. As I said, I’m no economist.

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