Saturday, March 10, 2012

Cost-Benefit Analysis – Another Questionable Meme

– by Staff Report

Ludwig von Mises
U.S. Regulators 'Paralyzed' by Cost-Benefit Suits, Chilton Says ... Wall Street banks are using the threat of lawsuits to prevent regulators from writing rules mandated by the Dodd-Frank Act, said Bart Chilton, a Democrat on the U.S. Commodity Futures Trading Commission. "Some regulators live in constant fear and are virtually paralyzed by the threat" that they will face "spuriously" filed suits alleging that the costs and benefits of their rules weren't adequately considered, Chilton said in a speech prepared for the Trade Tech 2012 conference today in New York. "It is a bastardization of the conduct and use of cost-benefit analyses in regulatory rulemaking." – Bloomberg

Dominant Social Theme: When the Fedgov comes up with good regulations, the last thing responsible regulators need is for the business community to challenge them on cost-benefit grounds.
Free-Market Analysis: This is an interesting little article because it actually manages to compound the regulatory "problem" with yet another faux-facility: cost benefit analysis.
The conflation of these two concepts – regulation and analysis – adds yet more confusion to a marketplace already overwhelmed by price-fixing and distorted by efforts at restraining the Invisible Hand. The result of such massive price-fixing is inevitably recession, depression and general ruin.
That doesn't stop the regulatory machine from grinding along, however. Free-market economist Ludwig von Mises shows us elegantly in his opus, Human Action, that government force NEVER has the desired effect. It cannot because people moderate their behavior – but not in ways that regulators expect.
This is a fundamental problem of regulation generally, and the reason we call it an elite dominant social theme. The small handful of men who apparently run the world's central banks use the impossible wealth at their disposal to try to create world government. They are behind the current mania for regulatory democracy.
The more regulation the better, of course. That's because these individuals, from what we know of them, operate via mercantilism. They hide behind the scenes and pull the levers of government invisibly. They NEED massive government in for the continuance of their reign.
But ... regulation doesn't work. First, the largest regulatory entities tend to capture regulatory authorities and bend regulation toward their own ends. Basically, regulation eventually becomes a barrier to entry, restricting competition and fostering the very abuses it seeks to address.
Second, regulation usually creates exactly the opposite result from what it is putatively supposed to solve. This is because regulation is most often at cross-purposes with natural law. When people are barred from seeking what is naturally in their self-interest they will not cease to seek it, but merely change their methodology.
Regulation is built on an idea that is childish by any measure. It is the idea that one person – a so-called authority – can tell another person what to do even if that person has no relationship to him and is not harming him in the slightest.
Those who promote this system – at this late date – are either naïve or purposefully ignorant. In the US, which is the most extensively and painfully regulated country in the world it would seem – the historical experience with regulation has yielded exactly ... nothing.
The US grapples with an incoming depression, six or seven serial foreign wars, an increasingly militarized quasi-corporate state and a monetary system that is evidently and obviously failing. There are some six million incarcerated in the US and something like 30 percent of the population now have a criminal interaction by the time they are 25 or so.
All this is a result of an ever-more perfect regulatory regime that has been expanding in the US since the beginning of the 20th century. Regulation has done nothing to make people's lives better and a great deal to make them worse.
Nonetheless, because society's economic workings are so distorted at this point – not just in the US but throughout the West – regulations continue to be proposed as anodynes to the problems that they themselves have created.
Not only that, but a whole industry has sprung up around regulations – a faux scientific environment that seeks to regulatory structures as if they are predictable. So-called "cost benefit" analysis is part of this witchcraft and merely compounds the problem by making the process seem a bit more credible. Here's more from the article:
The CFTC is defending against a challenge filed last year in federal court that the agency overstepped its authority under the Dodd-Frank Act and inadequately assessed the costs of new limits on speculation in oil, natural gas and other commodities. The lawsuit was filed by the International Swaps and Derivatives Association Inc. and the Securities Industry and Financial Markets Association.
The lawsuit is one of the financial industry's highest profile efforts to challenge Dodd-Frank, the regulatory overhaul enacted in 2010. The associations represent JPMorgan Chase & Co. (JPM), Goldman Sachs Group Inc. (GS) and Morgan Stanley (MS), among other derivatives dealers. A judgment is pending.
Chilton, a supporter of the speculation limits, said banks and others should be required to provide cost analyses to rebut regulators' conclusions. "We put out a proposal, ask for comments and ask what the costs might be," Chilton said. "Then we either aren't provided with costs of the regulation, or what we get from the commenters isn't very helpful." .
But when we refine and purify the reality of the situation as expressed within the context of the flying lawsuits, what we are left with is a phony palliative (regulation) being challenged by an equally false nostrum (cost-benefit analysis) in a "court of law."
The court of law itself is equally questionable, as it provides an environment where the state itself (that has provided the regulations) basically serves as prosecutor, judge and jury. Regulations don't work. Cost-benefit analysis cannot either, as it is based on a projection of regulatory impacts that will inevitably prove incorrect.
We certainly don't regret that regulators are being "paralyzed" as regulation has never, to the best of our knowledge, provided effective solutions to apparent problems. The larger issue we wish to point out is that these faux-elite memes are so intertwined in society and the larger economy – after 100 years of promotion – that is likely impossible to simply remove them.
Conclusion: They are like some sort of parasite that has intermingled with the larger body at a DNA level. To purge them will take a great deal of effort and perhaps kill the patient as well. Inevitably, at some point, a new society must – and will – be born.

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