President Obama potentially can use his political skills, charisma, mandate and the large Democratic legislative majorities, to fulfill a long wish list. Clearly things are going to be different now. But how different?
Consider the constraints Obama and his party face: a plummeting economy, ongoing war and huge bailout debts sharply limit economic flexibility. Interest groups obviously haven’t gone away, particularly business, which has a lot at stake. And, most important, robust international competition limits the extent to which the US can protect American workers, investors and industry at the expense of the rest of the world.
As Hahn & Passell point out in a recent paper published pre-election:
In many ways, both candidates are defining themselves by how they would use regulation to cope with the great issues of the era – think energy security, climate change, housing finance, health care. Yet, the limits imposed by global integration, interest-group jockeying, budgetary constraints and even common sense suggest that, once in office, the policies of the two candidates would not be very different.
Those constraints alone can’t stop a president in Obama’s position. We’re likely to see strong moves toward regulating financial markets and health care, among other things. But in order to overcome the constraints, the president has to know exactly what he wants and be willing to target his power to get it done. Johnson pounded heads to get his civil rights legislation. What, exactly, does Obama want? Change?
The last election has revealed clearly the costs of economic cluelessness. McCain’s floundering in the face of financial panic likely turned the election definitively against him. It was enough then for candidate Obama to look cool and collected. It won’t be enough for President Obama.
Business could still provide a strong headwind against a regulatory revolution. But not if it remains divided. The Business Roundtable often supports federal regulation, even the likes of SOX, to hold off public criticism and, not so incidentally, beat down potential competitors. Big business thinks it can control the feds, but that’s less clear than ever with powerful forces lined up in favor of a bigger federal role. The Chamber of Commerce may not be able to hold off these moves toward regulation without something affirmative to offer politicians eager for “change.”
The point is that this both politicians and business have to figure out what regulation is really important and necessary. There is still, therefore, a role for well-reasoned moderation that uses the tools of economic analysis.
I think at least one fork of that path leads toward state regulation – not the kind of regulation states force on any firm selling locally, but regulation that firms can choose and avoid. Fears of a “race to the bottom” can be met by a well-fashioned, precisely targeted, federal backstop. That’s the message of my and O’Hara’s The Law Market, which is hitting the shelves just in time for the federal onslaught of the Obama administration. Apart from the book's specific recommendation, its discussion of the economics of jurisdictional competition should be must reading for would-be regulators of a global economy.
Anyway, there is now a generational opportunity for meaningful (if not necessarily wise) regulation that business and others will have to meet with coherent arguments. This could be a bull market for law and economics.
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