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President Obama today issued a new executive order (along with a Wall Street Journal editorial) calling for streamlining government regulation.

President Obama:

As stated in that Executive Order and to the extent permitted by law, each agency must, among other things: (1) propose or adopt a regulation only upon a reasoned determination that its benefits justify its costs (recognizing that some benefits and costs are difficult to quantify); (2) tailor its regulations to impose the least burden on society, consistent with obtaining regulatory objectives, taking into account, among other things, and to the extent practicable, the costs of cumulative regulations; (3) select, in choosing among alternative regulatory approaches, those approaches that maximize net benefits (including potential economic, environmental, public health and safety, and other advantages; distributive impacts; and equity); (4) to the extent feasible, specify performance objectives, rather than specifying the behavior or manner of compliance that regulated entities must adopt; and (5) identify and assess available alternatives to direct regulation, including providing economic incentives to encourage the desired behavior, such as user fees or marketable permits, or providing information upon which choices can be made by the public.

Eh, not a ton to say. It’s fine as far as it goes. Here’s where it would be helpful if Obama picked some fights and put out some reform markers, because I can’t tell if this is just cover to go after proxy access rules as a way of making peace with the business community. It’s worth noting that, as far as I read it, we’d have the same exact financial crisis, the same criminal securitization chain, the same uncapitalized derivatives positions, the same shadow banking panic if we regulated the financial sector with these guidelines.

And the things that actually acted on these principles in the past two years - the CFPB which has consolidated regulatory burdens across agencies in order to make regulations more clear, interchange reform which created a market between credit cards and debit cards to de facto create a market rate of credit at the individual merchant level - were bitterly opposed by the industries in question.

More generally I don’t like the notion that regulation is conceptually some sort of brakes on markets, a dial that can be turned up or down until some sort of optimal space is hit. I think of regulation as a means of handling the consequences of a specific market, both by setting up the terms on which the market plays as well as the mechanisms for handling conflicts and the way things collapse. How does a firm fail? How do other firms compete, and under what terms is information disclosed to the market? In some ways this is obvious: The nuclear energy market would not exist in its current form without the government. I’d be more likely to support for crazy loans if our bankruptcy courts were designed to modify primary household debt and also if we reformed the bizarre way we deal with junior liens, a conflict people knew about at the beginning of the housing bubble.

Side note: In my head there’s some half-formed article about the Cass Sunstein and Richard Thaler book “Nudge” being the death of modern liberalism. The program that most explicitly took the “Nudge” concept seriously, HAMP, is probably the biggest failure. Sometimes you really do need to make distributional choices and change the existing architecture, not try and bribe the existing agents to be nicer. Cass Sunstein is running the Office of Information and Regulatory Affairs, and this is probably his document.

Source: Streamlining Regulations: Does Obama's Effort Go Far Enough?