I suspect that there is an inverse relationship between government’s ability to get regulation right and the length of the legislation. Glass-Steagall was 34 pages long. Recently proposed financial legislation is 3000 pages long.
The need for appropriate regulation is where Harvard professor Richard Rogoff is heading when he compares the BP oil spill and the financial crisis. Both, he says were characterized by “the promise of innovation, unfathomable complexity, and lack of transparency.” Both also are connected to economic growth, economic catastrophe and the need for a global regulatory consensus. Quesioning whether a global financial consensus is feasible, IMF officials have said that individual nations are acting but the pieces don’t fit together. For offshore drilling, we can say the same when we consider the disparate incentives facing Brazil, the United States, and Nigeria.
Professor Rogoff concludes his paper with, “This time we can ill afford to keep getting it wrong.” I wonder though, whether, faced with the allure of innovation and the challenge of such complexity, government can ever get it right.
The Economic Lesson
I recommend looking at: This Time Is Different by Richard Rogoff and Manics, Panics, and Crashes, A History of Financial Crises by Charles Kindleberger. Both present the facts. By looking at the past, you can best decide what is wisest for future regulatory policy.