When Good Agencies Get Corrupted

by Stuart Shapiro

Political scientists used to write a lot about “agency capture.”  The idea was that government agencies became so entangled with the industry that they were regulating that they couldn’t help but do what the industry wanted.  The idea was largely discredited by the 1970s.  It was so discredited that few noticed when Congress started passing statutes that allowed significant portions of agency budgets to come from fees paid by the industry they regulated.  The result, as detailed in the Senate committee report on the financial crisis, looks a lot like agency capture (OTS is the Office of Thrift Supervision):

OTS also repeatedly attempted to stop the FDIC from downgrading Washington Mutual’s safety and soundness ratings.

Using fees to fund agencies is attractive, particularly in times of budget shortfalls.  Unfortunately doing so often has hidden pernicious effects.  These effects may not be seen for some time but when they come, they are doozies.

By: Stuart Shapiro

Stuart is a professor and the Director of the Public Policy
program at the Bloustein School of Planning and Public Policy at Rutgers
University. He teaches economics and cost-benefit analysis and studies
regulation in the United States at both the federal and state levels.
Prior to coming to Rutgers, Stuart worked for five years at the Office
of Management and Budget in Washington under Presidents Clinton and
George W. Bush.