When policymakers respond to a perceived market failure (whether real or imagined) with “reforms” that instead create government failure, they tend to leave the overall economy much worse off — except for a few well-connected people and firms.
The 2010 Dodd-Frank Act has become the poster child for this phenomenon. We have a great deal of evidence that it entrenches the worst excesses of crony corporatism while raising costs to consumers and doing little to prevent another financial crisis. My AEI colleague Peter Wallison discusses this at length in his recent book Bad History, Worse Policy: How a False Narrative About the Financial Crisis Led to the Dodd-Frank Act.
Shortly before Dodd-Frank passed, Cliff Asness of AQR Capital Management (and AEI trustee) wrote in the Wall Street Journal that the bill was “perfectly designed to create the largest and most powerful crony system in history. It’s not that the people, regulator or regulated, are personally corrupt. It’s that the system will itself select for, reward and enforce corruption.”
In other words, a “reform” bill ostensibly aimed at fighting cronyism and self-dealing instead entrenched it.
On May 9 at 2 PM, Cliff Asness will join me at AEI for a conversation about how recent policy decisions have increased cronyism and decreased competition in the financial sector — and what this means for the American economy going forward. It’s a conversation I’m very excited about, so I invite you to join us, either at AEI or via the web.
And if you have suggestions for questions I should ask Cliff, please put them in the comments.