Regular Regulation

Why do we need regulators?

Source: Government Accountability Office

Regulation is inefficient. No one ever hired a compliance officer to increase productivity. And regulation creates moral hazard. During the “blue law” era, the most energetic advocates for restricting alcohol sales on Sundays were both Christian ministers and bootleggers. The bootleggers got more sales if legal sales were restricted. This is called the “Bootlegger and Baptist” phenomenon.

This creates opportunities for disruptive, entrepreneurial enterprises. Uber or AirBNB are taking advantage of the highly regulated taxi and hotel industries to lower consumer prices and improve convenience. By using the internet and mobile technology these startups look to produce 90% of the output with 10% of the overhead.

But local governments mistrust the upstarts: they get a lot of revenue from regulated local businesses. Also, local regulatory bodies are dominated by the current incumbants who don’t want competition to depress their margins. That’s why florists and hair-braiders can have ridiculous licensing rules. Finally, there are legitimate safety concerns: we really do want inspectors to certify that the planes we fly on are safe and the drugs we use aren’t snake oil.

Source: NIH

As long as we have regulated markets we’ll have folks working to get around those regulations – some in order to innovate, some for more nefarious purposes. In many cases – like bitcoin – it’s a mixed bag. It takes some wisdom to sort these out.

Douglas R. Tengdin, CFA

By | 2018-02-02T05:32:17+00:00 February 2nd, 2018|Global Market Update|0 Comments

About the Author:

Mr. Tengdin is the Chief Investment Officer at Charter Trust Company and author of “The Global Market Update”. The audio version of each post can be heard on radio stations throughout New England every weekday. Mr. Tengdin graduated from Dartmouth College, Magna Cum Laude. He received his Master of Arts from Trinity Divinity School, Magna Cum Laude and received his Chartered Financial Analyst (CFA) designation in 1992. Mr. Tengdin has been managing investment portfolios for over 30 years, working for Bank of Boston, State Street Global Advisors, Citibank – Tunisia, and Banknorth Group. Throughout his career, Mr. Tengdin has emphasized helping clients manage their financial risks in difficult environments where they can profit from investing in diverse assets in diverse settings. - Leave a comment if you have any questions—I read them all! - And Follow me on Twitter @GlobalMarketUpd

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