Positive and Negative Externalities of Regulation - Essay Example

Regulation: An Analysis and Discussion of Positive and Negative Externalities Regulation and the application thereof is a topic that can only be defined as contentious within the current system. Certain groups, businesses, and/or political parties believe that the system is best served with little to no regulatory interference whereas other groups, businesses, and/or political parties believe that the only way that the system can behave in an ethical manner is to have a level of oversight to ensure that this takes place. As is often the case in life between such widely differentiated viewpoints, the truth of the matter with regards to regulation and its appropriate application within the context of economics, business, and politics varies based upon the particular use, application and scope of the regulation. As such, this brief analysis will consider the topic of regulation and seek to draw a level of inference based upon each of the aforementioned areas of regulatory interaction as a means to determine whether regulation (to a lesser or greater degree) is necessary in order to make these sectors function in a more efficient and ethical manner. Firstly, with regards to the political arena, this is the one area of regulation that it is the belief of this author requires and demands the greatest degree of regulation. Due to the nature of our representative republic, the nature to which corruption and illegitimate and non-symmetrical forms of representation take place based upon key interests and monied lobbies, the fact of the matter is that this arena of our society is perhaps open to the greatest form of corruption and unethical behavior than the other two which will be discussed. Due to the fact that politics is the juncture of business, individual interests, and economic development, it has the highest concentration of all of the corrupting influences of the other areas of society that require regulation. As a function of this, it is the firm belief of this author that due to these externalities, the realm of politics requires the highest degree of oversight and regulation as a means to ensure that the political process is not sullied with the high degree of corruption as well as personal and/or group interests that are pushed upon these decision makers each and every day of the week. A secondary area of the society that necessarily requires a degree of regulation is that of economics. Although many different economists have disagreed over the years with respect to the level of regulation that is ultimately good for the system, recent history has taught us that the degree of regulation or non-regulation that the presiding government has over the economic system within their national boundaries directly affects the overall health, performance, and longevity of that system. Of course the true nature and discussion of this regulation thereby boils down to not whether or not regulation itself is a net good or a net evil for the realm of economic, but instead the degree of this regulation that is beneficial to the system as well as the individual. Due to the highly integrated and interconnected nature of the current economic system, the level to which regulation seeks to manage and match these realities is extremely important (Pellerin et al 2009). With regards to the world wide economic meltdown that took place in late 2007 and whose ramifications and after effects have continued up until the present, the observer can readily note that this was primarily caused by a complete de-regulation of the economic system that had systemically been undertaken by a series of past presidents. So as not to seek to ascribe a certain level of blame to either political party, it should be noted that the level of deregulation that had taken place, ultimately culminating in the collapse of the real estate bubble and as a result the global economic meltdown, the protective regulatory mechanisms that had been put in place as a means to regulate and safeguard the activities of banking and lending institutions were not longer applied or enforced. With the freedom to write the rules of the game as they pleased, these institutions were able to play by a whole new set of rules leading up to the economic meltdown that has ultimately cost the world untold trillions in lost potential and debt accrual. As a function of this understanding, the reader can quickly come to a more full and complete appreciation for the ways in which regulation can serve to safeguard the system from would-be vulture capitalism, greed, corruption, and a host of other less than desirable actions on the part of individual shareholders or groups of shareholders (Caffagi 2012). By establishing ground rules that govern the economic system, it is possible for the government and responsible entities to seek to regulate the rules of the game without seeking to intimately control the individual participants within the process. Continuing upon the decreasing scale of entities that require regulation, the final dimension that this brief analysis will discuss is the need for regulation, and the degree to which it should exist, within the individual businesses that make up the economy as a whole. As has been discussed, the level to which politics and the economic system should be regulated has ranked high on the list for the reasons which have been discussed; however, as the trickledown effect of regulation takes place, the level and extent to which the individual businesses of the economic system can and should be regulated necessarily decreases. Due to the fact that each of these businesses ultimately makes up the economic system as a whole, seeking to individually regulate these entities is both something of a diminishing return as well as highly wasteful to the economy and individual profit expectation of the citizen and the business as a whole (Dent 2010). Without getting into the complexities of advanced economics, the reader can attempt to understand the level to which a high degree of regulation within the individual business sector robs the system of overall efficiency in the form of a deadweight loss. In this way, a high degree of regulation within this sector will not only serve to hurt the profit margins and growth of the individual business but also the growth and development of the economy as a whole. Naturally when one discusses the correct level and application of regulation, there is always a discussion of deadweight loss and the reduction in efficiency that is commensurate with a degree of regulation being put into place. The ultimate question that one must then ask themselves with relation to this is whether or not it is worth it in the long run to allow such a degree of deadweight loss to exist or whether it is better for the economic or political system as a whole to seek to run the risk of not having regulation as a means of saving the money that would otherwise be necessary to run such programs; generated from tax revenues which themselves exhibit their own levels of deadweight loss to the economy. However, as has been noticed from the activities and levels of corruption that exist within the political and economic systems, such a level of government intrusion in this arena is not only justified but required as a means to safeguard our political and economic system from any such repeat of the events of the past few years which not only had but continue to have debilitating effects on the livelihood of millions of individuals around the world. References Cafaggi, F. (2012). Transnational Private Regulation and the Production of Global Public Goods and Private 'Bads'. European Journal Of International Law, 23(3), 695-718. doi:10.1093/ejil/chs053 Dent, C. M. (2010). Freer Trade, More Regulation? Commercial Regulatory Provisions in Free Trade Agreements. Competition & Change, 14(1), 48-79. doi:10.1179/102452910X12587274068114 Pellerin, S. R., Walter, J. R., & Wescott, P. E. (2009). The Consolidation of Financial Regulation: Pros, Cons, and Implications for the United States. Economic Quarterly (10697225), 95(2), 121-160. Read More