Regulatory Capture across the Hudson

The book Reckless Endangerment by Gretchen Morgenson and Joshua Rosner is filled with examples of regulatory capture which the authors uncovered in their investigative reporting of the financial world. Here is my review in the Washington Post. Many of the examples are useful for teaching Economics 1—including what the authors see as a cozy connection between the New York Fed and the Wall Street firms it regulates.

Orley Ashenfelter, President of both the American Economic Association and American Association of Wine Economists, has done some of his own investigative reporting on the other side of the Hudson River. As he explains in a recent oped, the New Jersey liquor lobby has captured the State legislature, and has done so since the Great Depression.

I think these examples are better than the financial industry examples for teaching, at least at the principles level. Liquor stores are easier to visualize and explain than structured investment vehicles and the examples nicely illustrate the advantages of free markets, the dangers of government regulation, the role of special-interest lobbying, and how to reform the system, now that the wine growers in the state have started to rebel and change the law. Better than Jersey Shore as one of the commentators on the oped pointed out.

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