In Monday's Politico, the Systemic Risk Council’s Brooksley Born and William Donaldson argue the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) should be self-funded – that is, they should charge enough fees to the entities they regulate to cover their entire budgets.
Current fiscal uncertainty, headlined by the sequester, means these agencies’ missions are potentially at risk if they depend on uncertain Congressional appropriations. “It is both wrong and dangerous to impose funding cuts on these agencies,” they argue.
We will leave aside the fact sequestration means smaller spending increases and not actual cuts, where spending goes down. And I will leave it to my colleague John Berlau to analyze how effectively the SEC and CFTC were pursuing their missions before sequestration.
The point is self-funding is an interesting proposal – closer to the “user pays” principle than the current annual appropriations model. But ultimately, it is still a bad idea. The biggest reason is that it violates the separation of powers. If an agency is doing a poor job pursuing its mission, it needs to be held accountable; there is a reason Congress holds the power of the purse.
Given the amount of wealth in the investment sector, the SEC and CFTC are especially prone to regulatory capture. If those agencies are self-funded, it becomes much more difficult for Congress to discipline them for inevitable misbehavior. Similarly, if an agency engages in regulation without representation and issues regulations without authorizing legislation from Congress, it is much harder to take them to task. Self-funding removes a crucial disincentive to bad regulatory behavior. And as any economist, public choice or otherwise, will tell you, people respond to their incentives.
Born and Donaldson want the SEC and CFTC to become self-funding because the government’s fiscal troubles are putting the agencies at risk of being cut. I propose they treat the root problem of fiscal incontinence rather than its symptoms.
Both legislature and executive should look long and hard for places to cut back unnecessary or low-priority spending. Trillion-dollar budget deficits are simply unacceptable, especially when tax revenues are at record-setting levels. Not only has the Bush-Obama spending binge put future generations at risk, it is also putting some of the government’s highest-priority regulatory initiatives at risk, right now. And symptomatic relief won’t cut it.