Over the last several months there has been a lot of discussion regarding regulation. Much of the discussion has tended to focus on regulation as an instrument to further controversial policies. It is important to recognize that regulation is not inherently bad. Society needs constructive regulation in order to function and provide all parties with an understanding of what the rules are. Imagine sports without rules.
However, in order to be accepted and effective, regulations are best implemented after reasonable debate, during which the interested parties have an opportunity to negotiate and compromise. Unilateral and arbitrary implementation of regulations, through executive orders, for example, can give rise to considerable push back and legitimate outrage.
The use of regulations, to further generally accepted objectives, are a useful adjunct to effective governance. However, it is important to be wary of unintended consequences that can create roadblocks and sometimes only serve to impede progress. Investors should seek to understand the potential impact of regulatory changes and how they may affect investment opportunities.
For example, most people recognize that motor vehicle speed limits are important to public safety and can contribute to improved fuel efficiency. But balance is critical. Too fast increases the potential for, and seriousness of accidents, and encourages the excess use of fuel. If speed limits are set too slow, they reduce highway capacity, waste time and makes vehicular travel less convenient.
All comments and suggestions are welcome.
Walter J. Kirchberger, CFA®