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Too Few Regulations? No, Just Ineffective Ones
THERE is a misconception that President Bush's years in office have been characterized by a hands-off approach to regulation. In large part, this myth stems from the rhetoric of the president and his appointees, who have emphasized the costly burdens that regulation places on business.

But the reality has been very different: continuing heavy regulation, with a growing loss of accountability and effectiveness. That's dysfunctional governance, not laissez-faire.

When it comes to financial regulation, for example, until the crisis of the last few months, the administration did little to alter a regulatory structure that was built over many decades. Banks continue to be governed by a hodgepodge of rules and agencies including the Office of the Comptroller of the Currency, the international Basel accords on capital standards, state authorities, the Federal Reserve and the Federal Deposit Insurance Corporation. Publicly traded banks, like other corporations, are subject to the Sarbanes-Oxley Act.

And legislation that has been on the books for years -- like the Home Mortgage Disclosure Act and the Community Reinvestment Act -- helped to encourage the proliferation of high-risk mortgage loans. Perhaps the biggest long-term distortion in the housing market came from the tax code: the longstanding deduction for mortgage interest, which encouraged overinvestment in real estate.

In short, there was plenty of regulation -- yet much of it made the problem worse. These laws and institutions should have reined in bank risk while encouraging financial transparency, but did not. This deficiency -- not a conscientious laissez-faire policy -- is where the Bush administration went wrong....

...Still, the Bush administration's many critiques of regulation are belied by the numbers, which demonstrate a strong interest in continued and, indeed, expanded regulation. This is the lesson of a recent study, ''Regulatory Agency Spending Reaches New Height,'' by Veronique de Rugy, senior research fellow at the Mercatus Center at George Mason University, and Melinda Warren, director of the Weidenbaum Center Forum at Washington University. (Disclosure: Ms. de Rugy's participation in this study was under my supervision.) For the proposed 2009 fiscal budget, spending by regulatory agencies is to grow by 6.4 percent, similar to the growth rate for last year, and continuing a long-term expansionary trend.

For the regulatory category of finance and banking, inflation-adjusted expenditures have risen 43.5 percent from 1990 to 2008. It is not unusual for the Federal Register to publish 70,000 or more pages of new regulations each year....