Financial Myth Busting 06-26-2016: Dawn Bennett interviews Richard Williams
Washington, DC -- (ReleaseWire) -- 07/07/2016 --DAWN BENNETT: So, Richard Williams is the vice president for policy research and director of the Regulatory Studies Program and senior research fellow at the Mercatus Center at George Mason University. Williams has testified before the U.S. Congress and addressed numerous international governments, including those at the United Kingdom, South Korea, Yugoslavia, and even Australia. He has had media appearances including NPR, Reuters, Bloomberg, The New York Times and The Wall Street Journal; as well as acting as an advisor to the Harvard Center for Risk Analysis. With his extensive background, I thought he would be the perfect person for all of us today, the first Sunday after the historic Brexit vote of leaving, to share with us his ideas and how insane EU regulations have turned the Brits against Brussels, where possibly the long term market will be and the impact due to the Brexit. Richard, welcome to Financial Myth Busting.
RICHARD WILLIAMS: Thank you.
BENNETT: This week, the Brits defied expert opinion and voted to withdraw from the European Union. Not only did they vote to Leave, but the Brexit vote was larger than anticipated. What's your take on why the vote was so decisive?
WILLIAMS: Well I think first of all, it's a mistake to say that it's all experts on one side, and it was uninformed people on the other. I think the British people gave themselves a chance to govern themselves. And if you look at who voted, a lot of it was older British people, probably people who remember what Britain was like before being in the EU.
WILLIAMS: So I think that they made a trade-off. They said the choice was between governing ourselves or listening to bureaucrats in the EU making decisions for us, that does seem to be quite wrong.
BENNETT: The European Union is infamous for regulating things that don't even necessarily need a regulatory intervention. For my listeners, who might not know how notorious the EU is for this type of regulatory busy-bodying, can you give them an example or two of what I'm talking about?
WILLIAMS: Sure. So there's a couple that I think are particularly illustrative. There was a Catholic priest in Suffolk, England, who hired a guy to come in and change his light bulbs. He would just get on a ladder, climb up, and then change the light bulbs. Not very expensive, didn't take very long.
WILLIAMS: The EU had a directive that said well that's simply not going to work. Now it cost them £1700, and they must erect a scaffold, takes two days to erect the scaffold, just to change the light bulb. Yeah.
BENNETT: So this kind of impact must have hurt them more than helped them, don't you agree?
WILLIAMS: Oh yeah, absolutely. There is another example now if you have shell eggs, you know, chickens lay shell eggs, you had to buy a £5000 machine to put a stamp on every single egg that had the date the egg was laid and the name of the chicken. I didn't even know they all had names.
BENNETT: I think the EU's basically now the world's best at creating regulations, especially over trivial, arbitrary issues like that, you know, naming of a chicken? I mean, I thought you know, kids might do it if you lived on a farm, but that would be it.
WILLIAMS: Oh well, we're pretty good at this ourselves, I mean we have rules that tell food producers how many cherries have to be in fruit cocktail, for example.
BENNETT: Oh. That's interesting.
WILLIAMS: We have incredibly silly stuff like that.
BENNETT: How big an impact do you think the over-zealousness of these regulations had on the Brits' decision to Brexit?
WILLIAMS: Well it's hard to say, because there's it's a complicated issue, right? A lot of people were very concerned just about immigration and so that's another issue. But it's pretty clear, at least from what I've seen, and they don't do exit polls, but it's pretty clear that a lot of people were very, very upset about their lives being controlled by people 500 miles away in Brussels, that didn't seem to reflect their preferences. That's not to say that the United Kingdom doesn't have a history themselves of doing really silly regulations. They do, and so the question for the United Kingdom is, if we now exit from the European Union, will we go back and have a whole slew of senseless regulations ourselves?
WILLIAMS: And that's going to be something they're going to have to tackle, just as we have to tackle it here.
BENNETT: If you were in Washington looking at what happened this week at Brexit, how would that affect your perspective? Do you think there are any lessons American politicos can draw from what happened on Friday?
WILLIAMS: Oh, I absolutely think there are lessons. We have now well over 50 bills that have been sitting in Congress now for a number of years to reform our regulatory process. We haven't had significant reform of our regulatory process since 1946, when the Administrative Procedures Act was created.
WILLIAMS: Every president since Hoover has come in and said that they absolutely could not control the executive branch, meaning the bureaucracies. Jimmy Carter said it was the hardest part of his presidency. That he just simply didn't know how to control them. And even our current sitting president has said that regulations are sometimes getting out of hand.
BENNETT: And the American media of course is framing Thursday's vote in American terms, so specifically many are saying that the Brexit vote actually bodes well for Trump. What do you think about that? And also, is there any connection, or is that just the media trying to manufacture a story?
WILLIAMS: Well, you know, I'm not a political analyst, so I wouldn't want to hazard a guess who this will help. But what I do hope is that the people that are responsible, particularly on Capitol Hill, for looking at our regulatory system, which has now gotten far too large, it's gotten far too complex. We went over one million restrictions, where the Federal government is saying you shall do this, or you must do that, in 2010. One million restrictions on people who were either trying to keep a small business going or trying to start a business. This is insane. We have to do something about it.
BENNETT: You used to be the director of the FDA Center for Food Safety and Applied Nutrition.
WILLIAMS: I was director of Social Sciences there, yes. Including economics.
BENNETT: How did the experience inform your perspective on regulating? Is that where you're coming from? Did you find that those in charge of creating these regulations tended to overestimate their ability to make a better world?
WILLIAMS: Well, yes, I spent 27 years in the Federal government in FDA, and including some of that was a short time in also management billet that oversaw regulations. And I can tell you that a lot of what goes on is what I would regard as doing favors for the rich and the well connected, giving them regulations that for example might protect one source of businesses while putting their competitors at a disadvantage, and usually the people that are put at disadvantage are small businesses.
WILLIAMS: And a lot of times, they don't even know what the problem is they're trying to solve or they don't have a solution for the problem. But the regulation just goes forward because that's the goal. Just to put out as many regulations and as large a regulation as you possibly can. And after a while, that becomes discouraging.
BENNETT: How could that possibly be the goal? How could anybody do a job just for that?
WILLIAMS: Just for example, there is a level in government called the Senior Executive Service. Those are the very top people in government who are not politically appointed. They get their bonuses at the end of the year. Out of many of them, and this is written in the contract, on the number of regulations that they put out and how large they are. That's kind of crazy. As opposed to solving social problems, which is what they are supposed to do.
BENNETT: Last week on Financial Myth Busting, we recounted the story of Soros and Black Wednesday, back in September 16th 1992, and I'm hoping you can comment on this, because the UK of course was forced out of the EU's Exchange Rate Mechanism and it was the infamous trade, of course, which broke the Bank of England. And 24 years later, of course, here we are again, Soros is back talking about how this is going to cause the EU disintegration and make it irreversible. And he's very heavily invested in gold. But he believes there's going to be some form of devaluation unleashed by Brexit. Are we grossly over- or under-estimating the true cost of a vote to leave the EU? Is there, in your opinion, going to be immediate impact on jobs and regulation, financial markets?
WILLIAMS: Yes, because I think this is really historic. I mean, one could argue that after the American Revolution, that there was an immediate impact on the United States, for breaking away from Great Britain. And nobody could predict what it is, and I think it'll be very difficult to predict this. But I will tell you that we recently released a study that showed that if we had just kept our regulatory state constant at a hundred thousand pages of regulations back in 1980, we would all be $4 trillion richer. That's $13,000 richer for every single American.
BENNETT: Wouldn't that be nice?
WILLIAMS: So it's not like it's all one-way. Certainly there will be an impact. And I think it's impossible to predict what that impact is, but I think if the UK does it right, they can minimize the impact. And I think they could come out better in the long run.
BENNETT: Focusing a little bit on what comes next, my understanding is that the Brexit referendum is not legally binding, Parliament has to act, plus it also doesn't meet the EU standard for binding. Again, I'm just reading this, researching it, but it doesn't reach the standard for binding referendum, where 75% of eligible voters must participate and a two-third vote is required. And lastly, of course, Scotland and Northern Ireland voted to stay in the European Union, so I'm just wondering, is Brexit for real?
WILLIAMS: I can't imagine that after such an historic vote it would not be for real, but how it actually plays out will certainly be interesting. Certainly it's already caused the Prime Minister to resign.
WILLIAMS: So I think yes, certainly something's going to happen, but how it happens, I would be loathe to want to predict that.
BENNETT: The coverage of Brexit of course is now focused on Saturday and Sunday, that more countries that might similarly seek to leave the EU. There have been polls in Italy and in Denmark and the Netherlands. They're showing growing resistance to the EU. How do you think this will shake out, and do you think the EU project is actually finally doomed?
WILLIAMS: I would be surprised if the entire EU project is finally doomed. I would not be surprised if the Euro goes away, and I'm not an expert on monetary policy, but certainly a number of people have suggested that the Euro might have been a huge mistake. I think the key, you know, what started as the Common Market, was just an idea that they facilitate trade.
BENNETT: That's right.
WILLIAMS: That would have been the great success of the European Union. And if they are able to keep that, and have relatively free trade, because free trade helps everyone, it's hard to believe that, that's sort of economics 101, but we have a difficult time convincing people that, that voluntary trade between two people helps both parties. And so if they can keep free trade, and perhaps do away with some of the incredibly offensive regulations, I think that they may actually be able to overcome this.
BENNETT: What about their massive debt levels that have been gathered over all these years? Who's responsible for those? Based on regulation, is it divvied up, where actually Britain's going to have to pay their part before they walk out the door? I don't know what the divorce terms are, do you have an idea on that?
WILLIAMS: You know what my idea is? We ought to first look to American debt. We have to look at our own debt levels and figure out what we need to do about paying our own debt. Not pay it off, but certainly get it down to a manageable level. And it is becoming unmanageable. And it's becoming scary, I think. If you think about it, I'm a little bit older, and this is the younger generation paying off my generation for overspending. And I think eventually, people are going to be upset about it. I don't know if it's the same in Europe, country to country, but here, it's generation to generation debt. And I think that's going to cause quite a political fire storm as times goes on.
BENNETT: So do you think there's going to be any buyer's remorse on the side of the Leave voters, as well as here in the United States?
WILLIAMS: Possibly. But again, I do think there are a lot of educated people that understood the trade offs that they were making, and they said basically, we want to govern ourselves. And if you look at why countries go to war, a lot of countries go to war, they go to the war because it's in the right to be their own country. To govern themselves. That's why we went to war against the British. And I think if you look at how the British people did during World War II, they went to war because they did not want to be subjected to another country. So I think it's an incredibly powerful emotion that caused people to vote that way, and hey, there may be buyer's remorse with some of the near term consequences, but in the long run, I do think that people knew the consequences and made that trade off.
BENNETT: I think there was so much tension among member states that it reached a breaking point. Not just over the refugees, but also as a result of course, of the exceptional strains between the creditors and the debtor countries within the Eurozone. So I'm wondering, will this disintegration—because it feels like it's going to be turned into that—will it be disorderly? We talked about, for example last week, political violence. Do you see any of that?
WILLIAMS: I would be surprised if that's the case. I mean, you know, I think we've been surprised already by the vote. But I would be surprised if this turns into political violence. I think again, this is just disgust with being led by people that you don't trust. We have a Congress that's getting 11-13% approval rating consistently. There are people in this country disgusted too.
BENNETT: Richard, thank you for being on Financial Myth Busting.
About Dawn Bennett
For over a quarter century, Dawn Bennett has been successfully guiding clients through the complexities of wealth management. Her unique vision and insight into market trends makes Bennett a much sought after expert resource with regular appearances on Fox News Channel, CNBC, Bloomberg TV, and MSNBC as well as being featured in Business Week, Fortune, The NY Times, The NY Sun, Washington Business Journal in addition to her highly regarded weekly talk radio program - Financial Mythbusting. Through prudent and thoughtful advice, Dawn Bennett has strived to consistently provide the highest quality of guidance.