Regular Regulation

Why do we need regulators?

Regulation is inefficient. No one hired a compliance officer to increase productivity. And regulation creates moral hazard. During the era of blue laws, the most energetic advocates for restricting alcohol sales were both Christian ministers and bootleggers. The bootleggers got more sales if legal sales were restricted.

This can create opportunities for entrepreneurial types. Uber or AirBNB are taking advantage of the highly regulated taxi and hotel industries to lower consumer prices and improve profitability. By using the internet and mobile technology these startups aim to produce 90% of the output with 10% of the overhead.

But local governments mistrust the upstarts: they get a lot of revenue from taxis and hotels. Also, local regulatory bodies tend to be dominated by existing businesses that don’t want more competition. That’s one reason why florists and hairdressers can have onerous licensing requirements. Finally, there are legitimate safety concerns: we really do want inspectors to certify that the planes we fly on are safe and the hospitals we go to are healthy.

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 wisdom to sort these out.

Douglas R. Tengdin, CFA

Chief Investment Officer

By | 2014-02-05T11:30:06+00:00 February 5th, 2014|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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