All Else Equal: Making Better Decisions

Ep49 “Making Regulation Work” with Jay Clayton

Oct 16, 2024

Join Jay Clayton, former chair of the U.S. Securities and Exchange Commission, as he sheds light on the complex world of financial regulation. He discusses how good intentions behind regulation can lead to unintended consequences and stifle innovation. Jay highlights the struggle regulators face in a politically charged environment and the impact of excessive rules on public firms. This conversation dives into the necessity for effective oversight while balancing competition and the importance of addressing core problems before seeking new solutions.

27:24

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Episode guests

Jay Clayton

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Quick takeaways

Regulation often leads to unforeseen consequences that complicate market outcomes, creating cycles of additional regulations that hinder innovation.

The politicization of regulatory bodies like the SEC distracts from their core mission, resulting in inefficiencies and an overburdened regulatory landscape.

Deep dives

Regulation as a Double-Edged Sword

Regulation can lead to unforeseen consequences that may be more detrimental than the issues they aim to address. When regulators intervene in a dynamic market, they often find that their actions can change the behavior of individuals and businesses, complicating the intended outcomes. This can result in a cycle where additional regulations are enacted to mitigate unforeseen issues, leading to an over-regulated environment. The complexities of these interactions mean that measuring the success of regulation is challenging, as the counterfactual—what would have happened without the regulation—is seldom observable.

Intro

3min

The Impact of Financial Regulation

15min

Examining the Effectiveness of Regulatory Bodies

3min

Regulatory Overreach and Legislative Failure

4min

Navigating the Challenges of Financial Regulation

2min

Regulation is meant to fix problems in the market, but as more and more regulation is introduced, those issues have a tendency to evolve into new ones. So is all this regulation even accomplishing what it set out to do? And how do you even measure the success of regulation to begin with?

In this episode, hosts and finance professors Jonathan Berk and Jules van Binsbergen sit down with Jay Clayton, former chairperson of the U.S. Securities and Exchange Commission. They chat with Jay about the unintended consequences of regulation, the increasing challenges facing regulatory bodies in today’s political landscape, and debate whether more regulation helps or hurts the overall market.

Find All Else Equal on the web:

https://lauder.wharton.upenn.edu/allelse/

All Else Equal: Making Better Decisions Podcast is a production of the UPenn Wharton Lauder Institute through University FM.