SEC Commissioner Hester M. Peirce advised regulators to consider market-based, rather than legislative, solutions for socioeconomic issues. Ms. Peirce reminded regulators that the results of any attempt to introduce new regulation are uncertain.
In a speech before the George Mason University Antonin Scalia Law School, Ms. Peirce examined questions raised by economists Harold Demsetz and Anthony de Jasay as to the benefits of government intervention. Mr. Demsetz had questioned proponents of government intervention for assuming that (i) the government is capable of eliminating inefficiencies through regulation and (ii) government employees (who are flawed, like all humans) will be able to execute flawless work. Mr. Jasay criticized the government's "less-than-benign motivation" to increase its discretionary power. Mr. Jasay argued, therefore, that we should not idealize the application of government solutions to solve socioeconomic issues.
Ms. Peirce stated that she seeks to encourage regulators to be skeptical of the assumption that regulatory policy responses are always the best solution for "real world challenges." She noted that the SEC has attempted some unsuccessful rulemaking, such as the Order Protection Rule of Regulation NMS, which stopped traders from using non-price considerations and created artificial incentives. Additionally, Ms. Peirce expressed her skepticism of the SEC's attempt to reverse several actions which allowed proxy advisory firms to "gai[n] market power" through further rulemaking. However, Ms. Peirce did state that she is optimistic that Mr. Demsetz's lessons "are being absorbed," citing a recent proposal to spare small, low revenue companies from the requirement to obtain an auditor attestation of their internal controls.
When facing a socioeconomic issue, Ms. Peirce advised regulators to consider either (i) leaving the problem for the market to solve or (ii) proposing a government solution that accounts for governmental incentives and human error. To best implement this new approach to socioeconomic issues, Ms. Peirce encouraged regulators to:
- identify the problem;
- describe the "baseline" for which to compare alternative solutions;
- evaluate the costs and benefits of each solution, including market-based solutions; and
- assess how the mandate would work and any unintended consequences.
Commentary / STEVEN LOFCHIE
Commissioner Peirce continues to distinguish herself as the leading liberal (in the old-fashioned sense of the word) in Washington. The fact that her policy views are supported by a recognizable theory of government, markets, psychology and ethics gives them a consistent logic that extends beyond her take on any particular issue.
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