The importance of financial reform in the wake of the 2007-2009 Financial Crisis cannot be overstated, as President Obama knew when he signed the Dodd-Frank Wall Street Reform and Consumer Protection Act into law. Although Dodd-Frank has been effective by many measures – despite the fierce sabotage efforts of the Republicans – from the beginning, it was way too burdensome and complicated …a ploy our politicians have taken to an art form. Dodd-Frank started out being 848 pages long but, within five years, 22,296 pages of rules and regulations related to the legislation had been published in the Federal Register.
To put this into perspective, the National Bank Act of 1864, a law that helped establish our entire banking system, was 29 pages long. The Federal Reserve Act of 1913, which created the Federal Reserve system, was 32 pages, and the Banking Act of 1933 (a.k.a. Glass-Steagall), the law that separated commercial banking from investment banking and created the Federal Deposit Insurance Corporation (FDIC), was just 37 pages.
Jonathan Macey of Yale Law School explains it this way: “Laws classically provide people with rules. Dodd-Frank is not directed at people. It is an outline directed at bureaucrats, and it instructs them to make still more regulations and to create more bureaucracies.” Or as The Economist brilliantly put it: “Like the Hydra of Greek myth, Dodd-Frank can grow new heads as needed.”
We imagine there weren’t too many tiny violins playing for Wall Street in the wake of the financial crisis, but between 2010 and 2016, implementing Dodd-Frank cost financial institutions an estimated 73 million hours in paperwork and $36 billion in actual dollars.
Behold, one of the most fundamental problems in Washington! Albeit the atmosphere is already toxic – or probably because of that – politicians decide the best way to proceed with their legislative agenda is to cram as many issues as possible into a bill, which does nothing but increase costs and inefficiency and create confusion and uncertainty.
The examples are endless. Just consider the Patient Protection and Affordable Care Act (a.k.a. Obamacare), legislation that ended up being thousands of pages of text essentially written in Klingon. The sheer breadth and depth of the bill led former Senator Jay Rockefeller (D-WV), one of the primary authors of the legislation, to say it’s “probably the most complex piece of legislation ever passed by the United States Congress” and “just beyond comprehension.” It’s tricky to pin down exact numbers, but USA Today estimates that, within three and a half years of the ACA being signed into law, almost 11,000 pages of regulations had been added.
Guys, there is no way these mammoth bills are as efficient as they could – or should – be. To make any sort of progress, there is one thing we must do before all else: Simplify. Legislation needs to be clear, precise and uncomplicated – the exact opposite of what happens today.
Steve Jobs, the co-founder of Apple, once said, “We tried to make something much more holistic and simple. When you first start off trying to solve a problem, the first solutions you come up with are very complex, and most people stop there. But if you keep going and live with the problem and peel more layers of the onion off, you can often arrive at some very elegant and simple solutions. Most people just don’t put in the time or energy to get there.”
But we better get there fast, because we obviously face major challenges.