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Securities is my go-to example of government regulation that has a net-positive market effect. Whatever we lose in market efficiency we more than make up for in

Securities is my go-to example of government regulation that has a net-positive market effect. Whatever we lose in market efficiency we more than make up for in market confidence.

wuliwong 9y ago
If I were to apply the idea initially expressed to your comment it would be to say "why not give people the choice to invest in non-SEC regulated markets." If the effect is net-positive, than why would you have to force people to choose SEC regulated markets. Obviously if it was not actually positive then not having the choice is pretty crappy.
- regulation_d 9y ago
  For sure. Regulation without justification is "pretty crappy". The starting point should always be "no regulation". Occasionally, we override the starting point following the occurrence of massive market failure, where market forces simply are insufficient to apply the right pressure to actors involved. In environmental regulations, we had the Love Canal which exposed a lot of school children to toxic waste. The market failed, we responded was CERCLA and the EPA. In the case of securities regulation, the market failure was a big one in 1929. We responded with major legislation in 1933. And in general, that legislation has been a rousing success. But it's important to note that the goal of security regulation, of preventing crappy investments, isn't just to protect mom-and-pop, but also to prevent against another 1929. In my mind, it's really hard to argue that the effect of US securities regulation hasn't been a net positive.
- rblatz 9y ago
  Do you remember when it was legal to smoke in bars? Every bar was filled with smoke. Sure a bar could opt in to going smoke free, but basically none did because it would drive potential customers away. I guess my point is that market forces prevented bars from being smoke free, and what you suggest would lead to basically no SEC regulated investments.

Securities is my go-to example of government regulation that has a net-positive market effect. Whatever we lose in market efficiency we more than make up for in market confidence.

wuliwong 9y ago

If I were to apply the idea initially expressed to your comment it would be to say "why not give people the choice to invest in non-SEC regulated markets." If the effect is net-positive, than why would you have to force people to choose SEC regulated markets. Obviously if it was not actually positive then not having the choice is pretty crappy.

regulation_d 9y ago
For sure. Regulation without justification is "pretty crappy". The starting point should always be "no regulation". Occasionally, we override the starting point following the occurrence of massive market failure, where market forces simply are insufficient to apply the right pressure to actors involved. In environmental regulations, we had the Love Canal which exposed a lot of school children to toxic waste. The market failed, we responded was CERCLA and the EPA. In the case of securities regulation, the market failure was a big one in 1929. We responded with major legislation in 1933. And in general, that legislation has been a rousing success. But it's important to note that the goal of security regulation, of preventing crappy investments, isn't just to protect mom-and-pop, but also to prevent against another 1929. In my mind, it's really hard to argue that the effect of US securities regulation hasn't been a net positive.
rblatz 9y ago
Do you remember when it was legal to smoke in bars? Every bar was filled with smoke. Sure a bar could opt in to going smoke free, but basically none did because it would drive potential customers away. I guess my point is that market forces prevented bars from being smoke free, and what you suggest would lead to basically no SEC regulated investments.