|Regulation Outlook logo 130||
No. 1, January 2011
The pendulum of public opinion on regulation swings back and forth, often in relation to news events that capture the public's attention, but on the whole, Americans are wary of too much regulation and believe that government intervention should protect the free-enterprise system. President Barack Obama's plan for a government-wide review of existing regulations reflects these concerns. This Outlook examines general attitudes about regulation and looks specifically at public opinion since 2008 on regulation of the financial sector.
Key points in this Outlook:
- Americans are of two minds about regulation. They want government to watch over business, but they worry that too much regulation undermines the free-enterprise system.
- Public support for more government regulation of banks and financial institutions was strong in the months after the financial crisis.
- The pendulum has swung, however. As early as spring 2009, there were hints in surveys that Americans thought that government was doing too much.
In 1978, AEI launched a magazine called Public Opinion to try to make sense of the vast amounts of public opinion data our society was accumulating. One of the early issues included an article by two distinguished social scientists, the late Seymour Martin Lipset and William Schneider, titled "The Public View of Regulation." The team investigated most polls on the subject since 1930 and concluded that "for over four decades, Americans have been ambivalent in their attitudes toward regulation." They argued that people support regulation not because they have lost faith in free enterprise. To the contrary, the authors said, "public belief in the principles of private competition remains remarkably strong. What people are asking is that government act as a watchdog over business to make sure that business does not abuse free enterprise and exploit its powerful position in society." They went on to argue that the public does not believe that regulation is the "ideal way to curb business abuses," and that Americans are wary of giving government "too much power over business, since government, too, is often irresponsible and abusive." The public would prefer self-regulation by business, they said, but it is also not confident business will regulate itself.
More than thirty years have passed since their article was written in January 1979, and with minor amendments, its major conclusions hold true today. For seven decades, Americans have been of two minds about regulation. Support for the free-enterprise system remains remarkably robust, even after the 2008 financial crisis and the high and persistent unemployment of the past two years. Americans are inattentive to and uninformed about matters of costs and benefits of government regulation and are likely only dimly aware of the significant growth in government regulation, but they still want government to watch over business, particularly industries they believe are behaving badly. When an industry is in the news for perceived improper activity, public support for more aggressive regulation is strong. In the absence of headlines, opinion about an aggressive watchdog role for government tends to be muted. And finally and importantly, the polls continue to show that Americans are still wary of giving government too long a leash.
Some amendments that need to be made to the Lipset/Schneider argument relate to changes in the polling business itself and not to public views about regulation. There are more pollsters than ever before in the field, spewing results on a regular basis. Pollsters tap public sentiments when an issue is in the news (think the financial crisis or the BP oil spill or the mosque near Ground Zero), and then drop the subject when the media move on to another story. There is less systematic, and more scattershot, polling on topics such as regulation.
When Lipset and Schneider wrote their article, the Carter administration was embarking on significant deregulation of the transportation sector, and pollsters asked more general questions about regulation than they do today. They examined the weaknesses and strengths of the existing regulatory framework by asking about the costs additional regulation imposes on business, the effect of regulation on business investment, and whether regulation can make business more responsible. Today, a few general questions are still asked about regulation, but pollsters are more likely to focus on specific areas they consider newsworthy.
In a crowded polling field, there is also much more competition than when Lipset and Schneider wrote, and in this environment, pollsters often push the survey instrument beyond where it can go, suggesting, for example, that Americans have fully formed opinions on highly complex pieces of legislation such as the Dodd-Frank Wall Street Reform and Consumer Protection Act. Americans rarely give specific legislative direction. They are generally inattentive, and they speak in broad terms through the polls.
Washington's regulatory footprint grew in many areas in the past two years, but the pollsters rarely asked questions about the Environmental Protection Agency's efforts to regulate greenhouse gas emissions, for example, or the regulations associated with the Patient Protection and Affordable Care Act. Of the eighty-four questions in the Roper Center polling archive from 2010 that include the word "regulation," most of the specific ones deal with financial regulation.
This Outlook begins by examining general attitudes about regulation from the limited warehouse of available questions and then looks specifically at public opinion since 2008 on regulation of the financial sector.
One of the central characteristics of public opinion is ambivalence, and we see evidence of it in many areas of American life. Americans want a strong and assertive military, but they are reluctant to send troops abroad. They want the federal government to do many things as befits a rich and powerful country, but they believe at the same time that government is wasteful, intrusive, and too expensive. It is not surprising that Lipset and Schneider found considerable evidence of two-mindedness on the subject of regulation. Americans want to get the government off the backs of business so our system of free enterprise can operate with minimal interference, but they also want to be protected, especially in areas involving health and safety. They want government to step in when they are not confident that business will regulate itself.
Lipset and Schneider argued that a majority opposed greater regulation while being comfortable with existing levels of regulation. The three-part question below shows the public's comfort level with existing regulation at different points since 1981. More people almost always say there is too much or about the right amount of regulation than say there is too little. The highest proportion responding "too little" occurred in two polls taken in September and October 2008 when the financial crisis broke. By December 2008, people were divided about whether there was too much or too little, and in three more recent questions, strong pluralities responded "too much." In a June 2009 Gallup question, 58 percent said they were personally worried about the federal government's increasing regulation of business and industry, while 40 percent were not worried. Seventy-eight percent of Republicans and those who leaned to the Republican Party were personally worried; 40 percent of Democrats and Democratic leaners were.
Solid trend data do not exist on regulation of specific industries, but since 2003, Harris Interactive has probed views about more than a dozen industries, asking people whether they should be "more regulated by government--for example for health, safety or environmental reasons--than they are now." A significant three in ten said none of the seventeen industries Harris inquired about in 2010 should be more regulated. The top candidates for more regulation (although none achieved a majority, as shown below) were oil companies, pharmaceutical and drug companies, and health insurance companies. Fewer than three in ten in 2010 said there should be greater regulation of airlines (27 percent), life insurance companies (27 percent), car manufacturers (26 percent), hospitals (25 percent), packaged-food companies (24 percent), telephone and telecommunications companies (23 percent), online retailers (12 percent), computer software companies (9 percent), computer hardware companies (9 percent), and supermarkets (8 percent). For most industries, support for more regulation has declined in recent years (banks are an exception), which may reflect public concern that more regulation could damage a fragile economy.Q2
Americans' concerns about too much government regulation appear to stem from the belief that it would damage the free-enterprise system and that it often does more harm than good. In 1964, as the table below shows, when government was smaller, people were closely divided about whether government had gone too far in regulating business and interfering with the free-enterprise system. When the question was asked again in 1978, concern about government's reach had risen substantially. Opinion spiked in 1981, shortly after Ronald Reagan took office, and again in 1995, just after the Republicans took control of the House of Representatives for the first time in forty years. Since that time, solid majorities have indicated that as a general matter, government has gone too far in this area. A May 2010 question from Harris Interactive that asked about stricter regulation showed that strong pluralities opposed stricter regulation of key aspects of free enterprise, prices, and, separately, profits.Q3
While solid trends on views of the free-enterprise system do not exist, a Gallup poll from early 2010 found that 86 percent of respondents had a positive view of the free-enterprise system. Sixty-one percent in the same poll had a positive view of capitalism. By contrast, 46 percent had a positive view of the federal government. The Pew Research Center's Global Attitudes Project also asks people to agree or disagree with this statement about the free-enterprise system: "Most people are better off in a free market economy, even though some people are rich and some are poor." In 2009, 76 percent agreed with the statement. In 2010, 68 percent did.
Another reason for skepticism about additional regulation stems from the public's conviction that regulation of business does more harm than good. This sentiment was unusually high in 1982, when 70 percent gave that response. The last time the Pew Research Center asked the question in spring 2009, 54 percent agreed and 39 percent disagreed.Q4
The public's equivocation about regulation is nicely summed up by the Pew question shown below. In October 2008, 50 percent said regulation is necessary to protect the public interest, while 38 percent felt that it usually does more harm than good. In December 2008 and May 2010, Americans were divided more evenly on the question.
The Financial Crisis
In a late December 2010 review of its weekly news interest stories over the past decade, the Pew Research Center reported that 70 percent of Americans had followed economic conditions "very closely" in September 2008 as the financial crisis unfolded, making it the seventh most closely watched story of the decade, on par with the onset of the Iraq war. Later in 2008, 62 percent told Pew they were following the debate over plans to use government funds to stabilize the financial markets very closely, a level of interest Pew described as far more intense "than the highest levels of interest in the 2009-2010 health care debate . . . or the 2009 stimulus debate." Fear in late 2008 and early 2009 that the financial system and the economy could collapse riveted public attention.
Although around 60 percent of Americans have money invested in the market, few people trade regularly or understand arcane financial transactions. Wall Street seems far removed from most people's lives except in unusual circumstances, like those that began in late 2008, and their views of it are mixed. In February 2009, 54 percent told Harris Interactive pollsters that Wall Street benefits the country more than it harms it. But 73 percent had given that response in 2006 when Harris had last asked this question. In 2009, 62 percent agreed that Wall Street is absolutely essential because it provides the money business needs for investment. Seventy-one percent had given that response in 2006. Free enterprise fares better than individual actors on Wall Street. Seventy-one percent in 2009, up from 63 percent in 2006, also agreed that "most people on Wall Street would be willing to break the law if they believed that they could make a lot of money and get away with it."
The harshly negative perceptions of Wall Street after the financial crisis hit contributed to the public's call for greater regulation. Eighty-seven percent in the February 2009 Harris poll agreed that "recent events have shown that Wall Street should be subject to tougher regulations." Eighty-two percent gave that response in 2010. As Lipset and Schneider contended, the public views greater regulation as a way of preserving free enterprise, in this case, from a financial sector that many perceived was rigging the odds against it.
Two questions asked by CNN and the Opinion Research Corporation illustrate the concerns the financial crisis engendered. In September 2008, 50 percent said there was too little regulation of the stock market and financial institutions. That sentiment rose to 59 percent in December. Forty-two percent said there was too little regulation of business and industry in September. That dropped slightly to 39 percent in December.
Fear or perceived injurious activity by Wall Street financial wizards produced more intense public reactions in other questions. When asked specifically about increasing regulation "to help prevent more financial crises from happening again in the future," 71 percent in the immediate aftermath of the crisis supported increased regulation. That dropped to solid majority support as Congress debated the Dodd-Frank legislation. Questions like the ABC News/Washington Post question that simply asked people whether they supported or opposed stricter regulation of the way banks and financial institutions conducted their business also showed solid support for greater regulation in spring 2009.
The Big-Government Behemoth
When Lipset and Schneider wrote in 1979, Americans were not convinced that government regulation was the best way to curb abuses or address problems, and they were also wary about giving government too much power over business. Although public support for more government regulation of banks and financial institutions was strong in the months after the financial crisis and during consideration of Dodd-Frank, there were also hints in 2009 that Americans were worried government had gone too far.
The public sees big powerful institutions such as government and business as threats to well-being. Since 1954, Gallup has asked occasionally whether big government, big business, or big labor poses the greatest threat to the country in the future. In every poll since 1965, more people have said that big government represents a greater threat than the other two institutions. In March 2009, the responses were 55 percent big government, 32 percent big business, and 10 percent big labor. The cumulative impact of federal government action on TARP, the auto bailout, the stimulus, and the health care bill accentuated fears about government's power, and in Pew and Gallup polls in 2009 and 2010, record numbers of Americans criticized the size and scope of government. As Pew put it in April 2010, "By almost every conceivable measure, Americans are less positive and more critical of government these days." In late 2009, around six in ten told pollsters that government was doing too much that should be left to individuals and businesses, while around 35 percent said government should be doing more. This disposition extended to views about regulation, as the first table in this Outlook shows. By August 2009, around half were saying there was too much government regulation of business. In a January 2010 poll, 24 percent said the federal government should be more involved in regulating and controlling business, while 50 percent wanted less involvement, and 23 percent said things were about right. A March 2009 Pew Research Center question found 54 percent saying that it was a good idea for government to exert more control over the economy than it had in recent years. But by April 2010, far fewer, 40 percent, wanted more government control.
A question asked by Selzer & Company for Bloomberg in March 2010 found that 18 percent believed government had taken enough action to fix what was wrong in the financial industry, 37 percent said too little, and 42 percent said government had gone too far. But when asked the same question about Wall Street, 12 percent said it had taken enough action, 58 percent too little, and 23 percent gone too far. In the same poll, 24 percent supported creation of a new separate agency with complete independence and its own authority to make rules for consumer credit, while 69 percent wanted to enhance the existing system.
Here there is an interesting parallel to public opinion at the time of the Enron scandal. Americans wanted wrongdoers punished, but they were reluctant to support creation of a new federal government agency to address corporate accounting and other problems. People wanted to throw the book at individual offenders and strengthen oversight practices at agencies with responsibility in this area. They wanted better enforcement of current laws, but they were skeptical about writing new laws or establishing new government agencies to address the problems. Even people who felt that self-policing at auditing firms had not worked were divided about creating a new agency to regulate accounting practices.
The change in atmospherics about regulation can be seen in two questions asked immediately before the 2008 and 2010 elections. In October 2008, likely voters in an ABC News/Washington Post poll were more worried that John McCain would not put enough government regulations in place (45 percent) than that Obama would put too many regulations in place (40 percent). By November 2010, however, 52 percent of likely voters said the bigger risk was that the Democrats would put too many regulations in place. And in a question asked by National Journal's Heartland Monitor poll in December 2010, people were told that the government had increased regulation of banks, brokerage houses, and other financial institutions. Forty-nine percent thought this should be a temporary policy, with 43 percent saying it should be a lasting one.
There is little indication from public opinion data that Americans are aware of the vast amount of governmental regulatory activity. Few Americans could discuss the regulations that will result from the two-thousand-page- plus Dodd-Frank Act. Their views about regulation are general, and they fluctuate depending on current conditions and events.
Lipset and Schneider concluded their article by saying, "Government regulation appeals to many Americans today for the same reason that trust-busting appealed to an earlier generation: as a use of government power to promote free enterprise and competition and to curb anti-social behavior by business." Correctly or incorrectly, Americans believed as the financial crisis unfolded that Wall Street had behaved badly, and they wanted action to correct the problem. They also wrote that Americans had become more alert to the costs of excessive government power and to government's reach. The pendulum has swung again in the direction of greater concern about government overreach. Americans may still be ambivalent about government regulation, but today they believe things have gone too far. Obama's mid-January decision to mandate a government-wide review of existing regulations reflects this concern.
Karlyn Bowman (firstname.lastname@example.org) is a senior fellow at AEI.