CEPR - Center for Economic and Policy Research


En Español

Em Português

Other Languages

Home Publications Blogs Beat the Press The Regulation Monster and the Confidence Fairy

The Regulation Monster and the Confidence Fairy

Thursday, 21 June 2012 03:45

Paul Krugman introduced the world to the "confidence fairy," the creature that proponents of austerity think will cause investment and growth because governments cut budget deficits. Only people with the right eyes, and a well-respected perch in policy making, are able to see the confidence fairy.

In the same vein, we should also recognize the "regulation monster." The regulation monster is the creature that strangles businesses in bureaucratic paperwork and red tape so that they can't invest and hire people. The NYT had a great piece documenting the work of the regulation monster in western Pennsylvania.

Those following Mitt Romney's presidential campaign or listening to Republicans in Congress have heard their complaints that President Obama's regulations are bottling up domestic energy production. These regulations are unnecessarily leaving the United States at the mercy of foreign oil producers, obstructing job growth and forcing us to pay more for energy.  

Having heard these stories, Jonathan Weisman went to western Pennsylvania, which is at the center of the Marcellus Shale, in search of the regulation monster. While the piece includes comments from industry people who complain about regulation, the people who live in the area all report no evidence of any regulation whatsoever. They seem to believe that the industry gets away with pretty much whatever it wants.

The evidence on natural gas prices would seem to support the residents' case. The current spot price is down by more than 40 percent from what it was when President Obama took office. In fact, there have been many reports in the business press of gas companies scaling back drilling plans because prices are too low.

In short, there is about as much evidence for the regulation monster in the energy industry as there is for the confidence fairy in the macroeconomic picture. Yet, these mythical creatures seem destined to have enormous importance in national politics and policy debates. Better get to know them.

Comments (23)Add Comment
Real Regulation Monster
written by Robert Salzberg, June 21, 2012 5:20
Our current tax system has created a tax compliance industry estimated to be between roughly 200 to 400 billion dollars a year. 

    Our crazy quilt of healthcare regulation has created dueling armies of office staff both for the insurance industry and for the attorneys, doctors and other health care professionals that have to deal with it.  Patients collectively spend lifetimes on the phone, internet or in person fighting to get insurance companies to pay what patients thought they'd paid for.

    Our Regulation Monster is most dangerous when he doesn't regulate at all.  For example, derivative trading and until recently, fracking for natural gas.
More Regulation Monstrosities
written by Robert Salzberg, June 21, 2012 5:53
Down here in Florida, we understand that we're a breeding ground for the Regulation Monster.

The Florida Legislature has passed laws that make groups collecting new voter registrations to turn them in to the election supervisor within 48 hours and requiring voter ID at the polls. Both former Governor Jeb Bush and the current Governor Rick Scott are also hot for voter purge lists.

When I first got my current job 10 years ago I went to the local sheriff's office and paid $5 to get fingerprinted for a background check. Then Florida legislators thought it was a great idea to have only certain private companies do fingerprinting for professional licenses. A friend of mine had to drive over 50 miles to pay $75 to get fingerprinted for a Real Estate license a few years ago because state regulators won't trust the local sheriff's offices to fingerprint people.

Go to Alabama or Kansas and try and set up an abortion clinic and then tell me there's no such thing as the regulation monster.
Call Kevin Clash
written by LSTB, June 21, 2012 6:48
Confidence Fairy, Regulation Monster ... These sound like Muppets, so Dean, I think its time for Beat the Press to branch into children's television programming. Maybe that's the way to connect to Post editorialists. Add characters for VSPs, IP rentiers, and inescapable accounting identities and you're gold.

("One, one purged voter list. A ha ha ha ha ha!")
More Regulation Monstrositites
written by Bart, June 21, 2012 7:00

Robert, I think what is meant in GOP circles is Federal Government regs, not state.
One Person's Monstor is Another's Protectionest Pet
written by Last Mover, June 21, 2012 7:40
Speaking of the regulation monster, a favorite sport among private corporations is to crush states rights on grounds they should be superseded by uniform federal regulations across all states in order to facilitate efficiency.

Financial regulations for example were designed to enable competition in a global marketplace, advance economic welfare for the entire nation and especially serve as an important deterrence to fascist based incentives that could undermine independent local businesses.
Great Meme--Regulation Monster
written by Samuel, June 21, 2012 7:55
I love the new meme...regulation monster! Now you need something for all the so-called "class warfare" that the GOP shouts about and you will cover all of their fairy tales.
written by Kat, June 21, 2012 9:04
I'm sure that was a fine piece of journalism (sometimes the NYT does its job), but I could not get past the first few paragraphs. It is far too depressing.
Obama willing partner in the deregulatory dance...
written by Anthony, June 21, 2012 10:15
It should be noted that Obama, at least when it comes to small business, is quite willing to echo Republican concerns about regulations. He had this to say in January 2011: "[T]oday I am directing federal agencies to do more to account for—and reduce—the burdens regulations may place on small businesses. Small firms drive growth and create most new jobs in this country. We need to make sure nothing stands in their way."

A few months later, perhaps prompted by this, McClatchy published a great piece looking for evidence of the "burden" placed on small businesses by regulatory agencies. The author, of course, found none.

The McClatchy article can be found here: http://is.gd/A74ho9
written by Kat, June 21, 2012 10:33
written by Samuel, June 21, 2012 7:55 AM
I love the new meme...regulation monster! Now you need something for all the so-called "class warfare" that the GOP shouts about and you will cover all of their fairy tales.

Maybe Bill Bennett can compile all these fairy tales into one volume, providing our nation's youth with tidy moral lessons.
states rights
written by david, June 21, 2012 10:46
More Regulation Monstrositites
written by Bart, June 21, 2012 7:00 AM

Robert, I think what is meant in GOP circles is Federal Government regs, not state.

States' rights advocates. Once they lived in the Democratic party, now they live in the Republican party. But "states rights" is just an orwellian term that rallies, for one example, slavery advocates to continue their 'business as usual.' So, yeah, basically state regulations should be included as monsters.
Director of Regulatory Affairs
written by JLR, June 21, 2012 12:02
The regulation "monster" is real. That is why every business with more than 50 employees needs a compliance program. I have been a lawyer for 24 years. I have yet to find a company that can comply with all the applicable regulations. Most of the time, they do not know that they are not complying until some regulator steps in to fine them. And, from my experience the regulators do not go after the large businesses. They target the samll businesses in order to establish precedents. Then, maybe, they go after the big guys. If you get an SBA loan you are required to bid for government contracts in your field. Have you ever tried to read the Federal Acquisition Regulations? I'll bet you real money that you cannot figure them out without hiring an attorney. An acquaintance invented a medical device. He got the patent in two years. He cannot afford to get federal approval to market the device. He now has to license it to a large company that can afford to deal with feds. The monster is ubiquitous. You need a federal license to buy and resell produce in interstate commerce. The regulations have nothing to do with food safety. In 1998 the Federal Register determined that there were 134,723 pages of regulations in 201 volumes of the Code of Federal Regulations. As far as I can tell, no has counted them since. So, Mr. Baker do an experiment. Try to start a new business that makes and sells something in interstate commerce. Attempt to determine all the federal, state, and local regulations that apply to that business. (I am sure that you will miss dozens since the regulations are scattered through hundreds of volumes). Try to organize your entity to comply with all of those regulations. Then, report back that the regulation "monster" is imaginary.
written by fuller schmidt, June 21, 2012 12:54
Have you used your position to determine which regulations are necessary and which are not? Or if any are needed at all?
written by James, June 21, 2012 3:20
Sounds pretty scary and bad for any business trying to get a SBA loan. Ooooo, I guess they are so bad that it's one of the fastest loan growth when CRE loans collapsed in recent year.

The 504 or 7(a) Loan Programs are products borrowers want badly since they cannot get a conventional loans.


Since Mr. Lawyer is well versed in large business or the consequence of big heavy fines, there is the ombudsdman process, agency informal appeal process and then judicial one.

I guess that's why the top largest institutions such as Wells, Chase, and UBS, Citi decided to spend less on BSA program and pay the heft fines. The fines they actually paid is what % of their income?

What do I know? I am not a lawyer, just like most of us, the 99%.
written by Jay, June 21, 2012 3:40
Regulation is code for compliance with laws. There are some businesses that don't want to comply with any laws. They want to do whatever they want in some sort of wild wild west, free for all type of economy until they are on the losing end of the situation. Basically, they don't want to be held accountable for externalities or share information.
don't like federal regulations?
written by Ethan, June 21, 2012 4:33
I have one word for you -- "Thalidomide". Look it up on Wikipedia if you're too young to remember.
written by Kent, June 21, 2012 6:23
I have one friend who works at a hotel, and another who manages a swim-and-tennis club. Both have had to deal with the issue of handicapped access to their pools. This has required the availability of elevators that allow a disabled person to get into the pool. The hotel has 3 pools and had satisfied the requirement with a portable device that could be moved into place when required. The regulations have recently been changed (not sure if it was CA state or Fed) such that every pool has to have a fixed elevator installed. At a cost of $10-15K apiece, and the liability risk due to its presence (kids hurting themselves), my friend says that many hotels are simply closing their pools. And, by the way, in the 10+ years they've had the portable device, it hasn't been used once.

I read recently that there were rule changes requiring regulations above a certain financial impact to be reviewed by congress. That's maybe a good step, if it actually is effectively implemented.

Then there's Sarbanes-Oxley...
Sorry -- too many fabricated horror stories, give names or you don't get taken seriously
written by Dean, June 21, 2012 9:18
Sorry folks, the business gang makes so much crap up that anonymous regulatory horror stories are worth zero. If you expect anyone to take you seriously, give names, otherwise the working assumption is that the story is not true.
written by S.D. Jeffries, June 22, 2012 12:59
The object of the regulations you cite from Florida, as with other states governed by Republicans, have little if anything to do with regulating anything. They have much more to do with shrinking the size of government - in these cases state governments - by privatizing every governmental function possible. To succeed in the brave new world of Republican governance, start a private for-profit company to take over some function currently being supplied by the government - and get to know your legislators (warning: they will be expecting campaign contributions).
Aging Confidence Fairy
written by Galludor, June 22, 2012 6:45
I think Krugman is referring to Alfred Marshall who introduced the confidence fairy to the world in 1890:
"The chief cause of the evil is a want of confidence. The greater part of it could be removed almost in an instant if confidence could return, touch all industries with her magic wand, and make them continue their production and their demand for the wares of others."
written by Jay, June 22, 2012 8:44
Kent, your friend needs a better lawyer. Most business people should know that undue financial hardship is an exception to ADA requirements. Also, the rule really didn't apply to existing pools! It sounds more like your friend was just looking for an excuse to complain. It is suspect that something like that caused them to shut down. It was probably more like decreased demand, poor customer service, and dwindling tourism or something more realistic than making the pool handicap accessible.
Director of Regulatory Affairs
written by JLR, June 22, 2012 12:07
I never said, nor even implied, that regulation is not necessary. Not only do I believe that some regulation is necessary, I believe that many regulations provide great service to society. (Clean Water Act, Clean Air Act, Securities Act). If it were not for regulations, I would not have a job.

James: most people who obtain small business loans do not know that they are required to bid on government contracts in their field. Actually, most SBA loans go to businesses that do not manufacture anything for sale in interstate commerce.

Ethan: Thalidomide was approved by the FDA (created in 1938) for sale beginning in 1957. It is an example of regulatory failure.

Jay: You are right. Kent needs a better attorney. But, the cost of litigating the undue financial hardship defense is very high and it is usually rejected.

Dean: I proved in federal district court that the way the CalEPA regulated water discharge into the ocean established San Diego's drinking water as a pollutant. The regulators did not understand the chemistry. Is that a specific enough reference to avoid your accusation of making things up?
What a Joke?
written by James, June 22, 2012 2:32

Exactly, have been involved and represented PL for over 20 years, Section 504 or 7(a)make up a bulk if not all the loans. So typical of someone trying to use something "INMATERIAL" even if that's valid to suggest the whole world is collasping.

If SBA loans are so bad to people, who force them to apply on the first place even there are several criteria to meet? NO one compell your poor borrowers to apply one given their attitude toward gov't regulations, right?

So, if the borrowers are so annoyed by any criteria by SBA, they should have tried ahhhhhhhhh....financial institutions?

The fact that they are willing to pay the fees speaks volume that the conventional lenders shut them down.
I meant tried "CONVENTION LOANS" instead of SBA
written by James, June 22, 2012 2:43
Wait, I want gov't subsidized loans but don't want to do anything.

Isn't it this is the theme that TP demand people who get any subsidy should WORK for them?

Oh, I forget that demand applies only to the poor, not the so called "job creators."

Why am I required to keep documenation for my business-related entertainment expense when I claimed them (flying to Aspen for the Food or Film Festival)? Why do I have do that just want to claim the deduction?

I should not need to hire a CPA to do that as the gov't/IRS should simply trust me.

Write comment

(Only one link allowed per comment)

This content has been locked. You can no longer post any comments.


Support this blog, donate
Combined Federal Campaign #79613

About Beat the Press

Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.