Much has been written since 2010 about the benefits and drawbacks of the Dodd-Frank Act. Advocates of the legislation insist that it has significantly reduced systemic risk, and that without it, it would be impossible to adequately supervise large financial institutions.
Critics fall into two camps: one that believes the reforms are not stringent enough, and one that believes the reforms have not made the financial system safer, instead creating inefficiency through impotent bureaucratic structures.
Respected economic minds are at home in each of these circles. The idea that some form of securities regulation is needed (such as Dodd-Frank, or the Financial CHOICE Act passed by the House in June) is not controversial, and neither is the charge that Dodd-Frank is flawed and is sorely in need of improvement.
A rarer perspective on Dodd-Frank is one on which President Trump campaigned: that the law should be dismantled and replaced with nothing.
All-or-nothing policy proposals are common on the campaign trail, particularly among Republican candidates, who typically assume anti-government political postures. Recall Energy Secretary Rick Perry’s pitch to scrap three federal agencies in 2011, including the one he now leads; Sen. Ted Cruz’s proposal to abolish the IRS during his 2016 presidential bid; Bernie Sanders’s half-baked plan to break up the nation’s biggest banks in 2016; and Donald Trump’s promise to get rid of Obamacare immediately, and the EPA eventually, after his election.
It makes sense that these claims appear in speeches and debates leading up to Election Day. They make good sound bites, and research in political science and communications has shown that journalists are more likely to recycle them than longer clips. Voters also remember provocative sound bites and digest them more easily.
But it is also no surprise that these promises rarely become practice. One reason is that it is not realistic to make rapid, sweeping policy changes. In fact, our government is fundamentally designed to prevent it. The framers of the U.S. Constitution understood the dangers of knee-jerk policymaking, which is why they limited presidential power both within the executive branch and across the other branches of government.
Both parties lament our large and complex bureaucracy, but it protects us from the rash behavior of politicians.
Surely, presidents must sometimes act quickly and flexibly when the nation’s safety and security are at risk. Some would argue that the financial crisis of 2008, which prompted the controversial bailouts that gave birth to Dodd-Frank, was one such domestic policy case. But when presidents act alone, they must proceed cautiously so their actions are not undone by the courts or Congress.
Second, landmark legislative programs are difficult to undo because they become engrained in people’s lives. The Trump Administration’s failed attempt to repeal the Affordable Care Act, even with both houses of Congress on his side, is a good example of this. Something as big as health care, as Republican Sen. Richard Burr put it, is “too important to get wrong.” Millions of Americans of all political stripes depend on it.
Dodd-Frank does not share the same entitlement status or name recognition as health care and social security, for example. But it has approached synonymy with financial regulation in the minds of voters. Financial regulation is the language the media and elites use when discussing Dodd-Frank and pollsters use when gauging opinion of it. Surveys indicate that most Americans agree there should be some form of regulation of Wall Street.
Businesses, too, have grown accustomed to complying with Dodd-Frank. Many have restructured their organizations and made significant changes in order to meet the law’s requirements. Somewhat ironically, the largest banks with the most resources at their disposal have had an easier time doing this than their smaller, less-powerful counterparts.
It is sometimes difficult to focus on the limits of the institutional presidency in the context of such a raucous contemporary political environment. But the steep bias of American government toward the status quo has played an important role throughout history.
Lauren Wright, PhD, is a lecturer in politics and public affairs at Princeton University; director of investor relations at NV5 Global, a publicly held infrastructure engineering firm; and author of “On Behalf of the President” (Praeger, 2016).