Adumbration

This discussion of regulation made a point I did not previously appreciate, in the context of the Sarbanes-Oxley (SOX) regulations that were enacted a few years ago in response to some blatant cases of fraud on the part of some corporate executives.    People don't dispute the conduct of fraud in those cases, but they involved only a handful of companies among thousands that are incorporated nationwide, and were already crimes before SOX was passed. 

Now consider the result:  very large companies have an advantage over their smaller competitors because they are able to distribute the SOX reporting costs over a larger base.  Furthermore, very small companies that want to grow have this obstacle to overcome if they go public and sell stock, which means they do not have access to the same capital markets that are needed to enable them to grow.  Instead these small companies are bought up by larger firms, and whatever innovations they brought to their customers are now controlled by management that is predictably more conservative.  The result encourages larger firms at the expense of competition.  

And this result of regulation is independent of one aspect of the "bootlegger and baptist" problem, wherein the people who end up writing the regulations are the very ones with the most to lose and gain by how those details get settled.

The guest, Richard Epstein, is pretty depressing otherwise, with a dark perspective on the economic situation.

Regulation (9/20/2010) - Richard Epstein of New York University and Stanford University's Hoover Institution talks about the current state of the economy, particularly the regulatory climate. Epstein argues the current level of regulation is producing unusually high costs. He digs more deeply into the pharmaceutical industry and discusses various regulations and alternative ways to encourage drug safety and innovation.