Regulation: Yes, No, Maybe?

Widely reported efforts of the current administration to roll back some of the regulatory activity of the previous administration have given rise to the question; are regulations good, bad or appropriate under certain circumstances?

Investors should carefully consider this issue on a case-by-case basis.  While overregulation can be stifling, some regulation is often essential.  Consider highway speed limits.  There is general agreement that some level of regulation is probably necessary.  However, if speed limits are too high, accidents tend to increase, in number and severity, and fuel efficiency decreases.  On the other hand, setting speed limits too low, while saving lives and fuel, reduces highway capacity and can lead to gridlock.

For those of you that are sports fans, everyone agrees that there has to be some rules.  However, too many rules and/or aggressive enforcement of existing rules, can slow the game to the point of boredom, leading to fan calls to “let them play.”

While some regulation is clearly essential for reasonable coexistence, investors should be alert to the difference between rules that promote orderly activity and regulation that is agenda and/or protectionist driven and meant to serve special interests rather than encourage orderly competition.

All comments and suggestions are welcome.

Walter J. Kirchberger, CFA