Political naïveté

While it is more than fair enough to state that most politicians and those who report on them are economically illiterate, unfortunately it is also true that most economists and economic journalists are political innocents.

On ASI, Tim Worstall reports on the financial regulation bill introduced by the influential US Senator Dodd:

First, Dodd’s bill would require startups raising funding to register with the Securities and Exchange Commission, and then wait 120 days for the SEC to review their filing. A second provision raises the wealth requirements for an 'accredited investor' who can invest in startups - if the bill passes, investors would need assets of more than $2.3 million (up from $1 million) or income of more than $450,000 (up from $250,000). The third restriction removes the federal pre-emption allowing angel and venture financing in the United States to follow federal regulations, rather than face different rules between states.

Tim W comments:

So Senator Dodd intends to eviscerate the funding mechanism for new and innovative businesses at exactly the time when the US needs more funding for new and innovative businesses to create new jobs and get the economy moving again. All because he operates under the delusion that business operates at the same glacial pace as bureaucracy.

Well, no. The first two provisions are Senator Dodd seeking to pay back his big contributors; the third is a sweetener. Large, established corporations are better able to absorb the added cost of regulations, and are also the most generous political donors.

Left unchecked, as for example in the EU, the mechanism quite deliberately strangles any innovation that might threaten the profits of the first and hence the payola that keeps politicians and officials living in the style they believe they deserve.