A competitive market, if we can keep it, is certainly the most efficient and least corruptible form of regulation. Stelzer exposes the problem with using bureaucratic agencies to regulate behavior when it disadvantages that competition.
For big business, a new regulation means hiring a few more lawyers; for small businesses, it means trying to hurdle still another barrier to entry. Take the case of Barclays, the leading Libor rate-fixer (so far as we know). Britain’s bank regulator complains that Barclays always leads the charge for more regulation: “Barclays has a tendency continually to seek advantage from complex structures or favorable regulatory interpretations.” Pharmaceutical companies promised support for Obamacare in return for provisions that protect them from competition from reimported drugs and generics. Insurance companies accepted costly provisions of Obamacare in return for regulations that allow them to roll those costs into the expenses they will be permitted to recoup in rates and, more important, penalties (oops, sorry Chief, taxes) that deliver to them millions of unwilling, healthy new customers. Big banks are allowed to shelter under Fed regulations when the going gets tough in return for muting their opposition to regulations that will do more to hurt their small competitors than prevent them from going about their business in the good, old fashioned way. Campaign contributors are allowed to short-circuit capital markets and obtain subsidies for their uneconomic green enterprises, sopping up capital that markets would surely allocate to more promising ventures.