Award Winning Blog

Wednesday, May 3, 2023

Market Forces Preempted by Rising Risk and Regulation?

             This might not be the best time for the U.S. Chamber of Commerce to make the case that rising risk and regulation are harming the marketplace and consumers.  See Public Policy Risks Soar Amid Growing Trend to Regulate Rather than Legislate and Partisan Approach to Lawmaking.  A content analysis of companies' 10-K filings with the Securities and Exchange Commission quantifies a rise in risk disclosures, with increases in key works such as data privacy, immigration issues, labor, and intellectual property.

             The Chamber appears intent on persuading the court of public opinion that life is getting riskier and harder for business. 

             It appears to me that Business America has largely foisted risk onto consumers, and counterintuitively their profit margins have increased despite frequent complaints that regulation raises the cost of doing business, squelches innovation, and reduces employment.

             I cannot find an airfare or hotel booking that permits cancellation without a risk premium doubling the non-refundable rate.  Similarly, if risk is so harmful, how can businesses, in a variety of market segments, find it possible to increase revenues and profit margins?  Even the Wall Street Journal notes this anomaly.  See Why Is Inflation So Sticky? It Could Be Corporate Profits

             I was indoctrinated by my UPenn and UVa training that market forces are largely unimpeachable.  In most cases yes, but just now, even some people at the "Diary of the American Dream" (a former marketing slogan for the Journal) see companies able to game the system.  Apparently, we consumers can become numbed by the constant drumbeat that inflation is unavoidable when markets become disrupted by supply chain and other extraordinary circumstances. The Chamber of Commerce wants to include in the emergency rationale upward price pressure created by added risk and government regulation.

             No one in the Chicago School seems able and willing to concede that sometimes market self-discipline fails.  How can these true believers explain the success achieved in keeping prices and margins extraordinarily high by blaming risk and the government even when the underlying emergency triggers have ended?  Now there are too many truck drivers at west coast ports chasing after declining loads.  No bottleneck in the supply chain anymore.

             Sticky, slimy, unclean, but surely not invisible hands at play.