The evidence is overwhelming that the American system of market regulation is badly flawed.
Our laws for accomplishing the four major tasks of market regulation--(1) protecting the environment from pollution, (2) shielding workers from danger, (3) safeguarding consumers from harm and price-fixing, and (4) protecting investors from deception and manipulation--are inadequate and outdated. Enforcement mechanisms, too often, are weak.
Despite the great gains of the New Deal and successive government regulation, America's environment, workers, consumers, and investors continue to suffer serious harm and face major risks.
Far too many businesses continue--sometimes infamously--to “externalize” their costs. The examples shown on the right are merely the tip of the iceberg.
Compared to the “bad old days” of the early 20th century, the U.S. has made great strides in pushing back on cost “externalization.”
It once was the case that businesses could dump toxic pollutants in the nation’s rivers and lakes with impunity. It once was normal for large numbers of miners and factory workers to lose their lives, limbs, and lungs in deadly, poisonous workplaces. It once was normal for consumers to be sold “snake oil,” and investors to be lured into buying bogus stocks, with no consequences for the liars and cheats.
The New Deal made enormous gains in blocking and rolling back these forms of harm.
New Deal conservation projects, often carried out by the Civilian Conservation Corps (CCC), helped to protect the environment (although other New Deal policies inflicted a great deal of harm, especially by mindlessly “taming” rivers”). The enactment of the National Labor Relations Act in 1935 and the Fair Labor Standards Act in 1938 began the process of improving workplace safety, through a dual approach of empowering unions and direct government regulation of the labor market.
Building on the initial work of the Federal Trade Commission, New Deal legislation strengthened consumer protections against untested drugs and unfair marketing practices. Most famously, the New Deal put in place a series of federal agencies—the Federal Deposit Insurance Corporation (created by the Banking Act of 1933), the Federal Savings and Loan Insurance Corporation (created by the National Housing Act of 1934), and the Securities and Exchange Commission (created by the Securities Exchange Act of 1934)—to protect depositors from losing their savings and create an initial set of safeguards for investors in the stock market.
The original New Deal, however, only began the process. From the 1960s through 2010, what is here called the New Deal writ large expanded the entire range of regulatory protections, culminating in the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010.
Existing regulation has greatly reduced cost “externalization”; it has hardly controlled it. Stronger, smarter regulation is still needed. Better enforcement is equally essential.
Protecting the Environment
Air Pollution: To better safeguard the environment, we need above all else to reduce the level of toxic air caused by industry, agriculture, and transportation. According to the Organization for Economic Cooperation and Development (OECD), air pollution will cause as many as 9 million premature deaths a year around the world--including thousands of deaths in the U.S.-- in the next four decades. Read More ->
Water Pollution: The recent crisis of filthy water in Flint, Michigan, has reminded us that clean water is still far from guaranteed to every American. According to Water Benefits Health, over two-thirds of U.S. estuaries and bays are severely degraded because of nitrogen and phosphorous pollution, while 45% of the nation's streams and 47% of our lakes are polluted . Read More ->
Workplace Safety: The federal Occupational and Safety Health Administration (OSHA) reported that 4,821 workers were killed on the job in 2014, which on average means more than 92 a week or more than 13 deaths every day. OSHA's conclusion: "Far too many preventable injuries and illnesses occur in the workplace." Read More -> and More ->
Wage Theft: According to the National Employment Law Center, “Wage theft is widespread across the country, costing workers and local economies billions of dollars each year.” A 2009 study by the Economic Policy Institute found, based on a survey of over 4,000 workers, that “26% were paid less than the required minimum wage in the previous work week, and nearly two thirds experienced at least one pay-related violation in the previous week (such as failure to pay overtime, not being paid for all hours worked, stealing workers’ tips, etc.).” Read More -> and More ->
Dangerous Products: To make an extra buck, some businesses continue to make and sell products that put consumers at risk of harm. The federal Consumer Product Safety Commission has found the incidence of consumer death and injury to be so widespread that it breaks out the data on dangerous products and types of harm into categories like: (1) amusement rides; (2) ATVs (All-Terrain Vehicles) and ROVs (Remotely Operated Underwater Vehicle); (3) carbon monoxide; (4) electrocutions; (5) fire; (6) fuel, lighters, and fireworks; (7) other home appliances; (8) nursery products; (9) pediatric poisoning; (10) pools and spans; (11) tipovers; and (12) toys. Read More ->
Price-Fixing: Most products and services are safe, but in some cases the corporations that make them collude to fix prices. Illegal price-fixing and other cartel behavior is so widespread that Purdue University Professor Emeritus John Connor, the "King of Cartels," has now published the 3rd edition of his work on "Price-Fixing Overcharges." Read More ->
Finally, although public and Congress's response to the Great Recession improved regulatory oversight of the financial system, investors still face perils. In 2015, the North American Securities Administrators Association (NASAA) announced its five top investor threats including: (1) unregistered products and unlicensed salesmen; (2) high-interest-bearing promissory notes; (3) fraudulent promotion of oil and gas investments; (4) "troublesome" high-risk real estate investments; and (5) Ponzi Schemes, where the Ponzi Scheme promoters and early investors get paid with money raised from later investors who get ripped off. Read More ->
What to Do?
While big holes and major defects in America's system of economic security and equal opportunity can be fixed by a small number of big policy changes, the gaps and flaws in the U.S. system of market regulation are numerous and must be fixed through a mixture of both large and small reforms.
Moreover, the nature of regulatory reform fits into at least four policy categories:
- Prohibition: Lawmakers and regulators can impose new restrictions, ranging from prohibition to rationing of harmful practices.
- Pricing: Government can impose prices (e.g., taxes or fees) for harmful behavior, with the price raised in proportion to the severity or duration of the harm. For example, CO2 emissions can be taxed based on the amount of CO2 that an entity emits. Prices can also be phased in, as well as adjusted for inflation to keep them constant. Read More ->
- Transparency: Policies can be changed to require consumers and investors to receive more clear, complete, and timely information about the risks they face.
- Enforcement: In some cases, there's nothing wrong with the law or regulation. The problem is weak enforcement. Government can strengthen enforcement by increasing the number, training, tools, and powers of its regulators.
- Incentives: Finally, regulation can in some cases be improved by recognizing (more than is now the case) that not all potential violators of regulatory standards are equal. Intentional and habitual violators can be treated differently than accidental or occasional violators. One device for dealing with this is to create positive incentives for businesses to follow the rules all of the time, e.g., by rewarding good behavior with fewer or less costly inspections.
It is beyond the scope of this analysis to try to identify exactly which prohibitions, pricing, transparency, enforcement, or incentives should be applied to the hundreds of specific regulatory deficiencies that hurt Americans and weaken the nation's market.
The aim here, rather, is to outline major categories of regulatory failure, identify some of the types of remediation available, and urge the importance of fearless and steadfast improvement in the regulatory system.
We should never regulate just for the sake of regulation. But we should never hesitate to regulate if doing so makes Americans safer as we go about our lives and work, and helps the nation's market work more effectively and generate greater wealth.