Results for “regulatory state failing” 38 found
America’s regulatory state is failing — we can’t even give money away
Top U.S. banks have threatened to give the federal government’s small-business rescue program a miss on concerns about taking on too much financial and legal risk, five people with direct knowledge of industry discussions told Reuters…
Their main concern is that the Treasury Department has said it expects lenders to verify borrower eligibility, and take steps to prevent fraud, money laundering and protect customer information under the Bank Secrecy Act, sources said. Banks are worried they could face regulatory penalties or legal costs down the line if things go awry in the haste to get money out the door, or get blamed for not moving funds fast enough if they perform due diligence the way they would in ordinary times, the sources said.
Here is the full story.
Conor Friedersdorf interviews me on the regulatory state and the pandemic
For Atlantic, here is one excerpt:
“Our regulatory state is failing us.”
And to troll some of you, here is another bit:
Friedersdorf: Libertarians and small-government conservatives are highly skeptical of the regulatory state. What do they get wrong?
Cowen: Very often, the alternative to regulation is ex post facto reliance on the courts and juries to redress wrongs. Of course, the judiciary and its components are further instruments of governments, and they have their own flaws. There is no particular reason, from, say, a libertarian point of view, to expect such miracles from the courts. Very often, I would rather take my chances with the regulators.
Also, let’s not forget the cases where the regulators are flat-out right. Take herbal medicines, penis enlargers, or vaccines. In those cases, the regulators are essentially correct, and there is a substantial segment of the population that is flat-out wrong on those issues, and sometimes they are wrong in dangerous ways.
Recommended, there is much more at the link.
Pandemics and public goods, and why we are failing at both
Here is my latest New York Times column, which has a specific part on how to address pandemics and a more general section on the evolving role of government in American society. In neither area are matters running especially well.
Here is one initial point, namely that it is difficult to commit to allow high prices upfront:
Research and development grants are a way to pay potential innovators up front — an important move, as an innovator can’t always charge high-enough prices for the value of its remedies when they’re actually needed.
That will lead to institutional failure, rooted in a mix of government and market failure. Therefore other rewards are needed, since the prospect of high prices does not adequately motivate. I thus call for some key drugs to be rewarded with prizes and for government to buy out the patent rights, if need be:
If anyone doubted a government pledge to pay big money for the rights to remedies, the patent’s value could be established by a competitive auction. Michael Kremer, a Harvard economics professor, outlined the procedure for such an auction in his research paper “Patent Buyouts.”
The larger problem is this:
OVER all, the American government seems to be turning its back on its traditional role of producing and investing in national public goods. If there is any consistent tendency in recent government spending, it is that spending on entitlements like Social Security and Medicare — which provide mostly private benefits — is rising and that investment and spending on national public goods is falling.
Do read the whole thing. I also suggest that (non-paternalistic) public health could be a suitable health care issue for Republicans, who presumably should be looking for alternatives to the status quo.
There are by the way two points which did not make the final cut for reasons of space. First, the current coronavirus in Saudi Arabia has not gone away as a source of potential problems. Second, the Bush Administration (43) did take some notable steps to return vaccine capacity to the United States, through both regulatory forbearance and HHS procurement. These are likely good policies since in a pandemic one cannot expect to rely on free international trade in a remedy but rather export controls are to be expected.
Do right-wing ideas keep on failing?
Chapter one: Politicizing the government, and lowering the quality of governance, should not be considered conservative ideas. The incompetence of Bush, a self-professed conservative, doesn’t make this so. The Founding Fathers cared about governance, and there have been plenty of bad Democrats. Furthermore when the Clinton administration improved FEMA, it was praised at George Mason and very vocally.
Chapter two: The Unitary Executive. No way is this a true conservative idea. No way. Checks and balances is a fundamental conservative idea.
Chapter three: Iraq. I’ll leave this aside for the sake of keeping the comments thread manageable. You’ll have a chance to comment on this soon, but not today.
Chapter four: Tax cuts for the rich. Even if you think these were a bad idea, don’t blame conservatism. The standard conservative idea is Milton Friedman’s nostrum that the real burden of government lies in the level of spending (and how it is spent), not the level of taxation per se.
Chapter five: State tax-and-spending limits. The Colorado plan for spending limits really didn’t work out so well and Anrig scores major points in this chapter. Major, major points. If you have a revisionist take on this, please do tell us in the comments.
Chapter six: "Smart" regulation. The regulatory burden has grown, for better or worse, with each administration. Anrig criticizes John Graham and his ilk, but his points boil down to disagreement with the conservative view rather than an indictment of what has been tried. We’d all like to have better regulation, and we can all admit it is very hard to get there procedurally.
Chapter seven: School choice and vouchers. The available evidence — see for instance Caroline Hoxby — suggests that vouchers are an improvement, albeit much overrated by conservatives and libertarians. However that hardly makes the idea bankrupt.
Chapter eight: Health savings accounts and malpractice reform. Health savings accounts are another tax break for savings and they won’t much improve U.S. health care. The malpractice crisis is overrated as a cause of high health care costs. Anrig scores points here, but mostly against wheel-spinning. It is worth stressing that "the right" doesn’t really have much of a health care plan at all, and that can count as an indictment.
Chapter nine: Social security privatization. I’ve argued that the Bush plan was just bad economics, even from a conservative or libertarian point of view. We already had private accounts in the form of Merrill Lynch, so why put a government-engineered, jerry-rigged structure on top of that?
The bottom line: Two strong points that can be scored against conservatism or market-oriented ideas, as opposed to the Bush Administration. First, state-level tax and spending limits haven’t worked out. Second, "the right" doesn’t (yet?) have a coherent health care plan. But the biggest problems faced by conservatism or libertarianism are along the lines of "won’t ever be tried," not "we just tried it and it failed."
Addendum: Anrig responds.
Hester Peirce on the SEC
As she did on the LBRY case (n.b. I was a LBRY advisor), SEC Commissioner Hester Peirce released a statement about the failings of the SEC with regards to the recently approved Bitcoin spot ETPs. It’s rare to read something this brutal coming from the inside.
We squandered a decade of opportunities to do our job. If we had applied the standard we use for other commodity-based ETPs, we could have approved these products years ago, but we refused to do so until a court called our bluff.
…Today’s order does not undo the many harms created by the disparate treatment of spot bitcoin products.
First, our arbitrary and capricious treatment of applications in this area will continue to harm our reputation far beyond crypto. Diminished trust from the public will inhibit our ability to regulate the markets effectively. This saga will taint future interactions between the industry and our staff and will dampen the rich, informative dialogue that best protects investors.
Second, our disproportionate attention on these filings has diverted limited staff resources away from other mission critical work. Over ten years, likely millions of dollars of staff time has gone toward blocking these applications.
Third, our actions here have muddied people’s understanding of what the SEC’s role is. Congress did not authorize us to tell people whether a particular investment is right for them, but we have abused administrative procedures to withhold investments that we do not like from the public.
Fourth, by failing to follow our normal standards and processes in considering spot bitcoin ETPs, we have created an artificial frenzy around them. Had these products come to market in the way other comparable products typically have, we would have avoided the circus atmosphere in which we now find ourselves.
Fifth, we have alienated a generation of product innovators within our space. Our unreasonable approach to these applications has signaled that regulatory prejudice against new products and services can lead us to sidestep the law and unreasonably delay product launches. The industry has logged hundreds of meetings, has filed submissions, withdrawals and amendments, and ultimately had to resort to a costly legal battle to get us to today.
Although this is a time for reflection, it is also a time for celebration. I am not celebrating bitcoin or bitcoin-related products; what one regulator thinks about bitcoin is irrelevant. I am celebrating the right of American investors to express their thoughts on bitcoin by buying and selling spot bitcoin ETPs.[10] And I am celebrating the perseverance of market participants in trying to bring to market a product they think investors want. I commend applicants’ decade-long persistence in the face of the Commission’s obstruction.
The resurgence of crypto
Crypto and bitcoin, among their other uses, are Rorschach tests for commentators. As these institutions evolve, are you capable of changing your mind and updating in response to new data? Sadly, many people are failing that test and instead staking out inflexible ideological ground.
Bitcoin prices are now in the range of $44,000, and the asset has more than doubled in value this year. Perhaps more surprisingly yet, NFT markets are making a comeback. Many of the older NFT purchases remain nearly worthless, but interest in the asset class as a whole has perked up.
These developments should induce us to reevaluate crypto in a positive direction. If in the past you have argued that crypto is a bubble, can it be the bubble is back yet again? Typically bubbles, once they burst, do not return in a few years’ time. You still will find Beanie Babies on eBay, but they are not surrounded by any degree of excitement. Similarly, the prices of Dutch tulip bulbs appear normal and well-behaved, as that bubble faded out long ago. Bitcoin, in contrast, has attracted investor interest anew time and again.
It is time to realize that crypto is more like a lottery ticket than a bubble or a fraud, and it is a lottery ticket with a good chance of paying off. It is a bet on whether it will prove possible to build out crypto infrastructure as a long-term project, integrated with mainstream finance. If that project can succeed, crypto will be worth a lot, probably considerably more than its current price. If not, crypto assets will remain as a means for escaping capital controls and moving money across borders, or perhaps to skirt the law with illegal purchases.
What might such an infrastructure look like? To make just a few guesses, your crypto wallet might be integrated with your Visa and other credit cards (perhaps using AI?). Fidelity, Vanguard, large banks and other mainstream financial institutions will allow you to hold and trade crypto, just as you might now have a money market fund. Crypto-based lending could help you invest in high-return, high-risk overseas opportunities with some subset of your portfolio. Stablecoins will circulate as a form of “programmable money,” and they will circulate on a regular and normal basis; such a plan was just initiated by the French bank SocGen. On a more exotic plane, AI-based agents, denied standard checking accounts, might use crypto to trade with each other.
I’m not arguing such scenarios are either good or bad, simply that the market sees some chance of them happening. And they are far more than “crypto is a fraud or a bubble.”
Whether that infrastructure will meet market and regulatory tests is difficult to forecast. It has never happened before, and thus no one can claim to be a true expert on the matter. Thus your opinion of crypto should be changing each and every day, as you observe fluctuations in market prices and other changes in the objective conditions.
In this perspective, there are some pretty clear reasons why the price of bitcoin is higher again. First, real interest rates have been falling, and fairly rapidly. Ten-year rates are now closer to four per cent than to five per cent. Since crypto financial infrastructure is a long-term project that won’t be completed in a year or two, lower real interest rates raise the value of that project considerably. The value of bitcoin rises as well, just as many other long-term assets rise in value with lower real interest rates. And if interest rates continue to fall, crypto prices could easily continue to rise.
The resurgence of crypto likely has other causes. The story of SBF is receding from the headlines with the end of his trial. That makes crypto look less scammy. On the regulatory side the United States did not try to shut down Binance, in spite of alleged scandals at the exchange. That is the regulators signaling they are not going to try to destroy crypto. Soon the SEC may approve spot bitcoin ETFs, which would make it easier and safer to invest in that asset. Nor have state laws popped up that might be trying to shut down crypto markets. Finally, the election of Donald Trump as President has not faded as a possibility, and in the past Trump has been supportive of crypto. Overall, the tea leaves are signaling that the U.S. government is making its peace with crypto, or at least with some parts of the market.
So with crypto the most important thing is to keep an open mind. As of late, events have been doing much to signal open and growing possibilities, rather than a world where crypto is shut down.
The Government Conspiracy Against Crypto
A sharply worded whitepaper from law firm Cooper and Kirk accuses regulators at the FDIC and the FED of an illegal and unconstitutional attack on crypto done without cover of law or Congressional approval. Cooper and Kirk are one of the most powerful and influential law firms in Washington. The firm’s attorneys have frequently appeared before the Supreme Court and as of 2021 “six former interns or associates of Cooper & Kirk [were] serving as U.S. Supreme Court clerks.” So this broadside isn’t coming from an obscure and unconnected law firm:
Recent stories in the financial press have uncovered a coordinated campaign by prudential bank regulators to drive crypto businesses out of the financial system. Bank regulators have published informal guidance documents that single out cryptocurrency and cryptocurrency customers as a risk to the banking system. Businesses in the cryptocurrency marketplace are losing their bank accounts, or their access to the ACH network, suddenly, and with no explanation from their bankers. The owners and employees of cryptocurrency firms are even having their personal accounts closed without explanation. And over the past two weeks, federal regulators have shut down a solvent bank that was known to be serving the crypto industry and, although it is required to resolve banks through the “least cost resolution” to the Deposit Insurance Fund, the FDIC chose to shutter rather than sell the part of the bank that serves digital asset customers, costing the Fund billions of dollars.
This pattern of events is not random, and we have seen it before. This is not the first time that federal bank regulators, working with their State-level counterparts, have abused their supervisory authority to label businesses unworthy of having a bank account and worked in secret to purge disfavored lines of commerce from the financial system. Beginning in 2012, the Federal Deposit Insurance Corporation, the Office of the Comptroller of the Currency, and the Board of Governors of the Federal Reserve System carried out a coordinated campaign to weaponize the banks against industries that had fallen out of favor with the administration—including gun stores, pawn shops, tobacco stores, payday lenders, and a host of other brick and mortar businesses. That campaign was called Operation Choke Point.
Our firm successfully challenged Operation Choke Point, and it was brought to a halt. The current bout of regulatory overreach against the crypto industry is illegal for much the same as reason as its predecessor. Specifically:
• Operation Choke Point 2.0 deprives business of their constitutional rights to due process in violation of the Fifth Amendment. It is well settled that when a federal agency attaches a derogatory label to an individual or business, and this stigmatizing label causes the business to lose a bank account or broadly precludes them from the pursuit of their chosen trade, the agency has violated the Due Process Clause of the Fifth Amendment, unless if first afforded the individual or business a right to be heard. This is precisely what the federal bank regulators responsible for Operation Choke Point 2.0 have done and continue to do by labeling crypto businesses a threat to the financial system, a source of fraud and misinformation, and a risk to bank liquidity.
• Operation Choke Point 2.0 violates both the non-delegation doctrine and the anticommandeering doctrine, depriving Americans of key structural constitutional protections against the arbitrary exercise of governmental power.
• By leveraging their authority over the banks to acquire the power to pick and choose the customers whom the banks may serve, the bank regulators have exceeded their statutory authority. The bank regulators are charged with supervising the safety and soundness of the banks; their effort to anoint themselves the gatekeepers of the financial system and the ultimate arbiters of American innovation and American economic life cannot be permitted to stand.
• The federal bank regulators are also refusing to perform their non-discretionary duties when doing so will benefit the cryptocurrency industry. State banks that are statutorily entitled to access the federal reserve system are being denied their rights solely because they serve the crypto industry. The federal bank regulators are not free to pick and choose which statutory obligations they duties they wish to perform.
• The federal bank regulators are evading the notice and comment rulemaking requirements of the administrative procedure act by imposing binding requirements on the banking industry through informal guidance documents. This is undemocratic, since it deprives the public of the right to comment on proposed rules, and it also runs contrary to the principle of judicial review, since courts lack the power to review “informal” agency actions.
• Finally, the federal bank regulators are acting in an arbitrary and capricious fashion by failing to adequately explain their decisions, by failing to engage in reasoned decision making, and by failing to treat like cases alike. It is difficult to imagine a more arbitrary and capricious agency action than simultaneously placing a solvent bank into receivership solely because it provided financial services to the crypto industry, while permitting insolvent institutions not tied to the crypto industry to continue operating.
…The persistent unwillingness of the nation’s bank regulators to follow the law and obey the Constitution calls out for Congressional action. Cracks are starting to form in the American financial system as its regulators increasingly abuse their power to achieve aims outside their authority and beyond their competence….We therefore urge Congress to perform its oversight role and hold these agencies to account.
I agree that financial regulation has been employed unconstitutionally, illegally, and covertly to control and regulate economic activity. One of my big fears is that a Central Bank Digital Currency would render nearly every transaction in the entire economy legible and primed for government monitoring and control. Thus, it is crucial to uncover, understand and debate the clandestine nature of financial regulation before the urgency of crisis is used to push us into an undesirable new equilibrium that will be difficult to escape.
Read the whole thing.
Yglesias on Operation Warp Speed and the Republicans
Here’s Yglesias on Operation Warp Speed and the Republicans:
The debate over Operation Warp Speed wasn’t just a one-off policy dispute. Long before the pandemic, there was a conservative critique that the Food and Drug Administration is too slow and too risk-averse when it comes to authorizing new medications. Alex Tabarrok, a George Mason University economist, wrote about the “invisible graveyard” that could have been avoided if the FDA took expected value more seriously and considered the cost of delay in its authorization decisions.
The pandemic experience validated this criticism, which came to be embraced by some on the left as well — and it was about more than just vaccines. When it came to home Covid tests, Ezra Klein noted in the New York Times in 2021, “the problem here is the Food and Drug Administration. They have been disastrously slow in approving these tests and have held them to a standard more appropriate to doctor’s offices than home testing.”
And yet, just as the invisible graveyard was becoming seen and the debate was being won and just as a historical public-private partnership had sped vaccines to the public and saved millions, the Republicans abandoned the high ground:
…it’s not surprising that Democrats are comfortable with the bureaucratic status quo and hesitant to ruffle feathers at federal regulatory agencies. What’s shocking is that Republicans — the traditional party of deregulation, the party that argued for years that the FDA is too slow-footed, the party that saved untold lives by accelerating vaccine development under Trump — have abandoned these positions.
At the cusp of what should have been a huge policy victory, Republicans don’t brag about their success, and they have no FDA reform legislation to offer. Instead, they’ve taken up the old mantle of hard-left skepticism of modern science and the pharmaceutical industry.
It’s been painful to see all that has been gained now being lost. Libertarian economists and conservatives argued for decades that the FDA worried more about approving a drug that later turns out to be unsafe than about failing to approve a drug that could save lives; thus producing a deadly caution. But now the FDA is being attacked for what they did right, quickly approving safe vaccines. I hope that he is wrong but I fear that Yglesias is correct that the FDA may now get even slower and more cautious.
The irony of the present moment is that there is substantial backlash to the FDA’s approval of vaccines that haven’t turned out to be dangerous at all.
That’s only going to make regulators even more cautious. Right now the entire US regulatory state is taking essentially no heat for the slow progress on the next generation of vaccines, and an enormous amount of heat for the perfectly safe vaccines that it already approved. And the ex-president who pushed them to speed up their work on those vaccines is not only no longer defending them, he’s embarrassed to have ever been associated with the project.
Like I said, it’s a comical moment of Republican infighting. But it’s a very grim one for anyone concerned with the pace of scientific progress in America.
Saturday assorted links
1. Henry Farrell reviews Mike Konczal.
2. Wombats, Cowen’s Second Law, and to the benefit of all. It is an article that keeps on surprising you.
3. Why was autocratic rule more stable in China than in Europe?
4. One guy who helped to drive GameStop (WSJ).
5. A review of the definition of market manipulation, for those of us who need it.
6. Our FDA regulatory state is failing us against Curative as well.
7. Game theory and the search for life, clever.
Friday assorted links
1. Sam Altman on idea generation.
2. Nuclear markets in everything: bid on plant reactor control and monitoring system.
3. Often immigrant restaurants are better prepared for the pandemic.
4. Why do humans help others, and how do financial markets affect the sociality of behavior? Quite interesting, not just the usual b.s. VTEKL.
5. Why men are pointing loaded guns at their dicks.
6. Why our regulatory state is still failing us.
The F.D.A. halts a virus testing program backed by Bill Gates
An innovative coronavirus testing program in the Seattle area — promoted by billionaire Bill Gates and local public health officials as a way of conducting wider surveillance on the invisible spread of the virus — has been ordered by the federal government to stop its work pending additional reviews.
Researchers and public health authorities already had tested thousands of samples, finding dozens of previously undetected cases in a program based on home test kits sent out to both healthy and sick people in the hope of conducting the kind of widespread monitoring that could help communities safely reopen from lockdowns.
But the research groups and the public health department of Seattle and King County, which had been operating under authorization from the state, was notified this week that it now needs approval directly from the federal government. Officials with the U.S. Food and Drug Administration directed the partnership to cease its testing and reporting until the agency grants further approval.
Here is the NYT link, ahem.
Sunday assorted links
1. Where have all the briskets gone? A good lesson in supply chain economics. And China to slap big tariffs on Australian barley exports.
2. Scarlett Strong on the updated source code.
3. Falling as a feature of Covid-19.
4. Dithering: a new podcast by Ben Thompson and John Gruber.
5. WHO conditionally backs the notion of Human Challenge Trials for vaccines.
6. Hockey analytics guy contributes to Covid-19 modeling.
7. Toward a theory of how and why UFOs would reveal themselves.
8. How much would you pay for this distanced (Dutch) meal?
9. “Citations for traveling faster than 100 mph have been numerous in recent days.”
10. Millie Small, RIP (music video).
11. To be clear, I am not against this kind of article (NYT). “Sweatpants and Caviar,” but in the paper edition it is called “A Chance to Think About Composing that Opera.” Still, we can learn a bit from doing a small amount of modeling of how it came about.
12. A sad take, no matter which side you trust, our regulatory state is failing us.
13. “Ethics of controlled human infection to study COVID-19.” That is what you might call “an establishment piece.” On one hand, it is nice to see them not reject the idea, though they cannot agree on monetary compensation for exposure. I wonder how they feel about fishing boats?
HHS turned down a big opportunity to make a lot of masks early
Another HHS official, also speaking on the condition of anonymity, said: “There is a process for putting out contracts. It wasn’t as fast as anyone wanted it to be.”
The masks still are not being made, and this would be in Texas. I’ll say it yet again: our regulatory state is failing us in this matter. Here is a bit more:
From his end, Bowen [the mask maker] said his proposal seemed to be going nowhere. “No one at HHS ever did get back to me in a substantive way,” Bowen said.
The senior U.S. official said Bowen’s idea was considered, but funding could not easily be obtained without diverting it from other projects.
While we are on the topic of diverting funding, surely we would all agree that the NSF funding for the social sciences all should — for at least two years — be diverted to biomedical research? I wonder how many economists are willing to tweet that policy recommendation.
USA non-existing facts of the day
Want to know how many tuberculosis cases there were in the U.S. last year? Ask the CDC. Want to know about health-care-associated infections? Ask the CDC. It knows.
But ask how many Covid-19 tests have been done, and the CDC’s doesn’t have an answer. Want a daily update on how many people are getting hospitalized for Covid-19? The CDC isn’t tracking it. Want to know if social distancing is making a difference? The CDC doesn’t know.
During this pandemic, when accurate, timely, nationwide information is the lifeblood of our response, the CDC has largely disappeared.
The performance of the world’s leading public health agency has been surprising, and by that I mean surprisingly disappointing. When the outbreak began, the CDC decided to forgo using the World Health Organization’s testing kit for Covid-19 and build its own. The test it shipped out to states was faulty, creating problems that stretched for weeks and slowed response as states waited for replacement tests.
Here is more from Ashish K. Jha. As I’ve said before, our regulatory state has been failing us.
Monday assorted links
2. An extensive and pretty devastating article on the testing fail of the CDC. Again, our regulatory state has been failing us. And coverage from the NYT.
3. At the margin: “Results show that informants were given approximately 70 East German marks worth of rewards more per year in the areas that had access to WGTV, as compared with areas with no reception—ironically an amount roughly equivalent to the cost of an annual East German TV subscription.”
4. “Bars and Restaurants Peel Cash From Walls to Help Idled Workers” (NYT).
5. Scott Sumner watch the islands. This piece seems to imply that in-migration is a major source of heterogeneity. I’ve also been receiving some emails from Xavier suggested tourist inflow is a major cause of heterogeneity, due to an ever fresh supply of hard to trace cases. No rigorous test yet of that one, but it is certainly in the running as a hypothesis. And if true, it suggests many parts of Africa may not be hit that hard.
6. Karlson, Stern, and Klein on Sweden.
7. South Africa and HIV/AIDS: will the latter have been good training for Covid-19? (Economist)
8. The danger of “herd immunity overshoot.”
9. Singapore government and the Virus Vanguard.
10. Beloit University moves to more flexible two-course module system. For now at least.