A Bad Week for Regulation

Nobody reasonably doubts the need for responsible regulation.  It’s for that reason that we need to understand the limits of reasonable regulations, and the risks that come from the temptation to exceed them.

Last week as a bad week for bad regulation.  First, this example of entrenched industries using regulators to further their own interests at the expense of their customers:

The National Association of Broadcasters is lobbying Congress to stipulate that FM radio technology be included in future cell phones.

In exchange, the NAB has agreed that member stations would pay about $100 million in so-called performance fees to music labels and artists. Radio stations would be required to pay performance royalties on a tiered schedule with larger commercial stations paying more than smaller and non-profit stations.

FM radio now has to compete not only with AM, but with all manner of streaming media.  So of course, they want the government to force their competition to pay the freight to expand FM’s market.  The irony is that the regulators writing these rules are just as clueless: my smartphone already includes an app where I can listen to any local FM radio station.

The other lesson is in the risk of politicizing well-established rules.  BP was browbeaten, if you recall, into putting $20 billion into escrow for the executive branch to dispose of as it wishes.  Some of us argued at the time that there were rules for how to deal with liability, and that the courts were a better, non-political venue for doing so.  Even assuming that Kenneth Feinberg were completely incorruptible personally, he would find himself buffeted by political pressures he – or his administration employers – might feel the need to respond to.

The first, most obvious pressure, is to be lenient in disposing of BP’s money.  Feinberg has tried to make it clear that he will, in fact, be far more lenient and timely than the courts would be:

Appearing … before about 300 people in Houma, La., Feinberg lectured, cajoled and asserted that once he takes over Monday, the process will be accessible, fast and fair.

“I will be extremely lenient in documentation,” Feinberg said. “I don’t need reams and reams of stuff. I don’t need a tax return. Do you have something you can show me? Well, the ship captain will vouch for me — fine. Well, my priest will — fine.”

But this hasn’t mollified those who want more:

Kenneth Feinberg’s effort to set the terms for handing out BP PLC’s money to Gulf oil spill victims came under fresh attack Monday from state officials and private lawyers who said he planned to be too restrictive in deciding who gets paid.

“Mr. Feinberg seems to be completely tone-deaf to the concerns of people along the Gulf Coast,” said Alabama Attorney General Troy King, who blasted Mr. Feinberg as a “corporate shill” of the oil giant.

The point here isn’t who’s right.  I certainly don’t know.  The point is that the suspension of normal, well-established processes for recovering economic damages have been suspended in favor of the judgment of a single bureaucrat.  Many will pile on and try to pressure the system in their direction, often through the media, which can’t help but erode public confidence in the system.

The temptation to help a client group, or to solve a problem now is dangerous, and often, if not usually, makes thing worse rather than better.

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