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May 17, 2009

Allstate's Finger in the Dyke

Allstate ran an ad on the back of the Politico on Thursday (May 14) with the explicit meme, "THE FEDERAL REGULATORY OVERHAUL SHOULD INCLUDE THE ENTIRE FINANCIAL INDUSTRY."

I wasn't quite sure that the rest of the ad supported this message. The headline of the ad reads, "We're not fixing it at all, if we're not fixing it all." Well, that's like me saying, "I'm not writing this blog, if I'm not writing this blog." Or "If that dog's name isn't 'Rex', that dog's name isn't 'Rex'." It has no operational significance because it only relates the conclusion to the conclusion's antecedent existence.

Then the illustration is of Uncle Sam poking his "I want you" recruitment finger up against a crack in what appears to be a reservoir wall. Several other points in the wall have money flooding out of them. Is the analogy to the little Dutch boy with his finger in the dike? The analogy would suggest that money is akin to nasty saltwater and that Uncle Sam is feckless in his attempt to stem the tide. But why is money undesirable? If the analogy was to controlling reckless financial decisions by repairing holes in the wall of Big Finance, it would seem more complete if the wall was labeled, "Federal Reserv(oir)" and have Uncle Sam simultaneously plugging holes in the private sector, while another version of himself was turning a wheel opening a valve of reckless monetary and fiscal policies in the public sector. Or perhaps, Uncle Sam's finger is a Mork from Ork device that has so much suction power that it is destroying the wall with each fell touch?

But, the advertisement doesn't leave us hanging. It provides several paragraphs of non-explanation. Bolded are the words, "We can't have a strong economy unless we have consistent federal regulation all over it... No one can be left out of the solution, or it won't be a solution." This is supported by bullet points of Obama-speak: Cooperate, Be Transparent, and Reinvent. I still have no idea what they are proposing.

Of course, I'm not so naive to believe that the ad is attempting to communicate a complex idea. It is communicating a simple one, that Allstate supports a particular piece of legislation, as described at allstate.com/fedreg, "Allstate supports H.R. Bill 1880 - National Insurance Consumer Protection Act."

The press release there tells us what Allstate is really thinking,

"Our regulatory infrastructure has simply not kept pace with the level of innovation in the financial markets and the growing risks embedded in financial products. A more comprehensive system of regulatory oversight will increase transparency and ensure the long-term stability of our capital markets. This means creating a sophisticated federal insurance regulator to oversee the financial stability and innovations of large insurance companies and pre-empting state-based regulation, just as has been done for the banking industry for 100 years."

This seems clearly to be a self-serving "solution" as having a single regulator makes it easier for large insurance companies to operate nationally. By itself, such centralization might be beneficial if the rules at the federal level are more coordinative than those at the state levels. The gains in cost reduction may be greater than the losses from optimality differences between the new federal regs and the set of state regs that current exist.

But, what does it mean to be a "sophisticated federal regulator"? Better bureaucrats? Laws crafted by Washington Wise-men?

This is the ongoing problem of figuring out what is really happening in the processes of government. The very words used seem to be merely nominal thrusts advancing each actor's interests. Talk of "solutions" is meaningless if we don't think about what we are solving for.

Posted by KevinRollins at 12:57 PM | Comments (6)

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