The Balance of Authority is a Factor in Policy Formation
“I have wondered at times what the Ten Commandments would have looked like if Moses had run them through the US Congress.” – Ronald Reagan
Elections are around the corner, and as those elected to state and federal offices will reach their respective destinations, we can expect a tsunami of new proposed bills. Rarely, if ever, those proposed bills will attempt to ease the regulatory burden. If history is of any indication, we will observe legislators’ attempts to identify issues that are “ripe” for policymakers’ intervention.
However, the ramifications of these interventions result in additional burdens for a substantial cross-section of the population. As Dr. Milton Friedman stated, public policy ought to be judged on their outcomes, not on their intent. Often, legislators engage in “problem creation” meaning that an issue can be constructed as a public issue.
For example, as the Consumer Credit Protection Act of 1971 case unfolded, it was clear that the moving parts in the policymaking process required a substantial amount of expenditure of political capital due the convergence of competing interests.
The other layers of complexity in the Consumer Credit Protection Act are emphasized by the resistance of an entire industry to have its practices regulated, hence de facto presenting a special interest group wall. Therefore, the legislators had to determine if the issue of abuse was sufficiently present to warrant actions sought by the proponents of the policy, and furthermore under what constitutional authority the curtailing of such real or perceived abuses could take place.
Policymakers must be mindful of the positions of the proponents, the opposing parties, and the eventual legal challenges that can arise as the implementation of the policy is getting on the way.
The final facet in the Consumer Credit Protection Act also provides a net discerning factor in the ability of policymakers to address complex issues: Overreaching.
The Truth in Lending Act does greatly condense (otherwise scattered information among loan documents) into a cohesive one-page that allows costs of the loan to be identified with ease by anyone with basic skills. Its usefulness is identifiable especially in the matter of interest rates, where the Interest Rate and the APR are displayed.
However, while the need for disclosure in a financial transaction proved to be a necessary regulatory practice on the matter of money supply, a clear overreach and a political attempt to indirectly influence the Federal Reserve did take place.
I don’t mean to say that the assumption by policymakers was incoherent with reality. Indeed an excess of credit (money supply) has a direct influence on inflationary pressure.
However, the US Congress was burning the candle at both ends by attempting to increase competition among lenders, while controlling the availability of credit to modify consumer behaviors. Again, this is not an issue of right or wrong, good or bad, or political ideology, but rather an issue of how the balance of authority is a factor in policy formation.
It is to be noticed as a footnote to this article, that in the late 70’s the Federal Reserve, under the tenure of Chairman Paul Volker, enacted a policy aimed at breaking the back of inflation, which of course had to do with drastic measures in containing the money supply and sending interest rates into double digits.
A policy enacted within the authority of the Federal Reserve despite the objections of numerous legislators.