The Rule of Nobody: Reasons Behind Regulatory Complexity

Posted on by Phil Querin

DecisionEver wonder why laws, rules and regulations keep growing, becoming more complex rather than less? Readers at this site know my feelings about Dodd-Frank (aka “FrankenDodd”) at 2,400 pages [not counting the thousands of pages of still unfinished rulemaking] and the Volker Rule at 900 pages.  Both laws grew out of a Congressional knee-jerk reaction to the financial crisis of 2008/9, and are glowing examples of “mission creep” i.e. where a limited engagement intended to accomplish defined goals expands exponentially beyond control.  The result: An incomprehensible and bloated set of laws and regulations bearing no resemblance to their original purpose. ~PCQ

A new book, ‘The Rule of Nobody’ by Philip K. Howard, recently reviewed in the online Wall Street Journal by Stewart Taylor, Jr., explains the phenomenon of uber-regulation, the reason and the results. In the book…

Mr. Howard shows how federal, state and local laws and regulations have programmed officials of both parties to follow rules so detailed, rigid and, often, obsolete as to leave little room for human judgment. He argues passionately that we will never solve our social problems until we abandon what he calls a misguided legal philosophy of seeking to put government on regulatory autopilot.

The Reason For This Dysfunction.  Actually, there are multiple reasons, all of which, we quickly recognize:

“Conservatives as well as liberals like detailed rules—complete with tedious forms, endless studies and wasteful legal hearings—because they don’t trust each other with discretion. Corporations like them because they provide not only certainty but also ‘a barrier to entry for potential competitors,’ by raising the cost of doing business to prohibitive levels for small businesses with fresh ideas and other new entrants to markets.Public employees like them because detailed rules “absolve them of responsibility.”

The Results.  The predictable result is that regulators have no accountability for “bad results” as long as they remain comfortably ensconced in a thicket of self-created regulations.  The WSJ article quotes many examples from the book; one of the most notable being the following:

After a tree fell into a stream and caused flooding during a winter storm, Franklin Township, N.J., was barred from pulling the tree out until it had spent 12 days and $12,000 for the permits and engineering work that a state environmental rule required for altering any natural condition in a ‘C-1 stream.’

The Solution. Mr. Howard proposes the ‘radical simplification’ of the ‘rulebooks.’

Common-sensical laws would place outer boundaries on acceptable conduct based on reasonable norms that are “far better at preventing abuse of power than today’s regulatory minefield.

These are laudable goals, but the cynic in me sees a more insidious illness that does nothing but metastasize: The politicians’ and regulators’ insatiable need to create more and more laws in order to guarantee their own self-survival.  Bureaucracy cannot exist in a vacuum.  It must be nurtured and fed. This means that there must be regulations implemented, personnel hired, budgets passed, political favors curried, and power amassed.  This is why most major pieces of legislation have some friendly, innocuous sounding titles such as “Wall Street Reform and Consumer Protection Act” [which has resulted in pulling up the ladder for many potential borrowers], “Homeowner Flood Insurance Affordability Act of 2014” [which turned out to be highly unaffordable], “The Affordable Care Act” [which has been anything but],“The Paperwork Reduction Act”[which…well, you’ve seen how successful that’s been on reducing the federal burden of paperwork imposed on businesses and individuals].

The quintessential example today of hyper-regulation is the Consumer Finance Protection Bureau, or “CFPB.”  This leviathan consolidates responsibilities from many agencies, including:

…the Federal Reserve, the Federal Trade Commission, the Federal Deposit Insurance Corporation, the National Credit Union Administration and even the Department of Housing and Urban Development. The Bureau is an independent unit located inside and funded by the United States Federal Reserve, with interim affiliation with the U.S. Treasury Department. It writes and enforces rules for financial institutions, examines both bank and non-bank financial institutions, monitors and reports on markets, as well as collects and tracks consumer complaints. Furthermore, as required under Dodd-Frank and outlined in the 2013 CFPB-State Supervisory Coordination Framework, the CFPB works closely with state regulators in coordinating supervision and enforcement activities. [See, Wikipedia here; footnotes omitted.]

Conclusion.  In a post on the White House Blog titled ”Consumer Finance Protection Bureau 101: Why We Need a Consumer Watchdog” the young author struggles to convince us that the CFPB is The New Sheriff in Town that we need to protect us from the bad guys. I’m not sure if this post was authored by someone who actually knew what she was talking about, or merely a student who won a local high school creative writing contest. Certainly, gravitas does not appear to be a credential necessary to get posted on the White House Blog.

Unfortunately, however, some of those public watchdogs, such as the National Traffic Safety Administration, seem to have remained asleep outdoors on the porch, rather than protecting the consumers who pay their salaries.  According to a recent Bloomberg article [“Regulator Didn’t Act on Evidence of Defective GM Airbags”] [1]:

U.S. regulators looking into General Motors Co. (GM)’s Chevrolet Cobalt noticed a surprising statistic: warranty claims over the car’s air bags were four times higher than for competing vehicles. They also had customer complaints, crash reports and GM’s own descriptions of the fault.

Even with all that data, a review group at the U.S. National Highway Traffic Safety Administration overruled an investigator in 2007 and determined there wasn’t enough of a pattern to open a formal probe, according to documents released yesterday by the House Energy and Commerce Committee.

While the e-mails and memos add to evidence GM dragged its heels on responding to concerns over defects, they also shed new light on the government’s decision not to act on a flaw now linked to 13 deaths in accidents.

“Everything in this memo suggests they should have opened a defect investigation,” said Clarence Ditlow, executive director of the Center for Auto Safety, a Washington-based watchdog group. “The numbers are off the charts.”

So what happened?  Why are we just now hearing about GM’s Chevy Cobalt recall over an ignition switch defect that was known about since 2001? And why did this country suffer a near-death experience resulting from the financial crisis circa 2008-2009, when there was a pack of “watchdogs” ostensibly protecting us, such as the Federal Reserve [“…supervising and regulating banks….”], the Dept. of Treasury [“…fostering improved governance in financial institutions….”], the Office of the Comptroller of the Currency [“…compliance and regulatory matters of importance to bank directors….], the Securities and Exchange Commission [“…Protects Investors, Maintains Market Integrity….”], the Commodities Futures Trading Commission [“…protect market participants and the public from fraud, manipulation, abusive practices and systemic risk….”], and on ad infinitum?

Riddle Me This Batman: Why have we created an entirely new regulatory “watchdog” called the CFPB, when there were already several packs of watchdogs roaming the streets looking for financial abuses?  What assurance do we have that this Big Dog will be any better than the others?

The answer is that government regulators, politicians, and bureaucrats are more interested in keeping their jobs, rather than doing their jobs. Hiding under the a warm blanket of uber-regulation is far safer for job security than going after the perps and stepping on a few toes.  What we need today is leaders willing to lead, regulators willing to regulate, and lawmakers willing to enact laws designed to be enforced.  Pretty tall order.

Now, you tell me. Do we have anyone in Washington up to the task?  I fear not.[2]  If not, then we can expect more of the same; byzantine laws that do nothing but further entrench Big Government into our daily lives.  Ultimately – and it appears we may already be there – it is coming to the point where the average American simply ignores the self-absorbed Beltway dysfunction, much as they would the weather – over which they also have little control.


[1] The fact that airbags did not deploy during crashes underscored the dangers inherent in the ignition switch failures reported in the Chevy Cobalt.

[2] Quoting Diogenes: “…one can make eunuchs out of men, but no one can make a man out of eunuchs”.

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