Rules We Can Really Live By

By Karen Petrou

  • Judging U.S. rulemaking by its benefits to the public good, not just by its impact on private wealth, is transformational and, with a new CBA methodology, also more than possible.
  • Equitable rules can be both effective and efficient.
  • Maximizing the public good is not synonymous with redistribution or reverse discrimination.

In 1993, President Bill Clinton issued Executive Order (EO) 12866, creating hurdles ahead of federal rules that are “economically significant.”  This was measured by a cost of $100 million or more.  On January 20, President Biden began a long-overdue rewrite, stipulating that federal rules are henceforth to be judged not just by their impact on private wealth, but also by what becomes of the public good.

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Caught in CCAR’s Cross-Fire

By Karen Shaw Petrou

  • CCAR now tries to make big banks a shadow U.S. central bank.
  • Result: more systemic risk and still less economic inequality.

How do you make the financial system less stable and increase U.S. economic inequality at the same time?  It’s not easy, but if you’re the Fed, then you accomplish this frightening feat by toughening up the annual CCAR stress test for the biggest banks without an eye to its systemic or market impact.  Stress testing is fine – indeed an important addition to the post-crisis supervisory arsenal.  But, CCAR itself is founded on two flawed premises:  big BHCs are the heart of financial stability and nothing the central banks does adversely affects economic inequality.  Continue reading “Caught in CCAR’s Cross-Fire”

Why Liberal Economics is to Growth and Systemic Risk as the Clinton Campaign was to Winning the White House

By Karen Shaw Petrou

At its October meeting, the IMF’s economists pronounced that global economic prospects are “benign,” with financial risks well within acceptable bounds, at least for now.  But, as Martin Wolf said the following Friday in the Financial Times, the meeting’s mood was anything but calm and confident.  Why?
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