Transparency

Arthur Levitt, former SEC Chairman, has some withering comments about recent government intervention in the banking business. Levitt argues that the intervention that’s needed is simply to have more stringent requirements for transparency. I tend to agree. In fact, I think we would benefit from less regulation but greater transparency in all kinds of areas. Many politicians seem to think that people are so stupid that their choices need to be restricted to prevent them from hurting themselves. That view has some merit, but by restricting choices you also limit opportunities. A better approach is to require transparency and warnings of potential poor choices, while still allowing those choices to be made. A good example of this approach is requiring a standard MPG notice for cars and trucks. This, combined with gasoline prices, nudges people in the direction of buying fuel efficient cars, while still allowing inefficient vehicles to be sold in those circumstances where the buyer thinks it’s appropriate. Contrast this with CAFE standards for mileage which distort markets and prices without actually doing much for fuel efficiency. Transparency simply works better than heavy handed regulation.

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