The Online Library of Liberty

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• Associate Editors
• Editorial
• Bibliographical Essay: Economics and Ideology: Aspects of the Post-ricardian Literature
• I: Political Economy
• The Classical Model of Political Economy
• Modernization, Ideology, and Economic Freedom
• Individualism Vs. Collectivism?
• The Industrial Revolution and Literacy
• Parliamentary Enclosure and Uprooted Labor
• Smith's Critique of Monopoly
• Ricardo and the “dual Development”
• Ricardo On Money
• Inflation and Political Crisis: Germany
• Inflation and Unemployment
• Government and Inflation: the Mccracken Report
• II: Concepts of Liberty
• Liberty and Its Components
• Is the Right to Freedom Vacuuous?
• Liberty, Slavery, and Utilitarianism
• Individualism, Freedom, and Society
• Liberty and Habeas Corpus
• Should Britain Have a Bill of Rights?
• Locke, Women, and Freedom
• Locke, Women, Freedom, and Individualism
• Locke, Property, and Individualism
• Children, Freedom, and Individualism
• Liberty and Mental Illness
• Sismondi and Liberty
• Mill: On Liberty
• Mill, Freedom, and Happiness
• Freedom of Speech and Moral Development
• Freedom In Kant, Hegel, and Marx
• Marx, Freedom, and Property
• Neoconservatives, Liberty, and Equality
• Freedom: the Politics of Justice and Existence
• Liberty and the American Revolution
• American Libertarians
• III: Economics and Public Policy
• How Economics Influences Political Theory
• Why Democracies Choose Deficits
• Inflation and the Welfare State
• Monetarism and the Depression
• Asian Monetary History: Gold & Silver
• Specie Money Vs. Antibullionists
• Inflation Effects On Capital
• Consumption of Public Health Services
• Factory Regulation and Vested Interests
• Poverty Programs and Government
• The Costs of Regulating Market Information
• Rent Regulation
• Engels On Economics
• IV: Social Analysis
• The Depoliticization of Society
• Is Philosophy Politically Subversive?
• Plato's Republic As a Political Dystopia
• Cicero and Modern Political Philosophy
• The Roman Jurist Gaius and Social Thought
• The Myth of Social Hierarchy
• Contract and Political Thought
• Private Vs. Public: the Domain of Freedom
• Montaigne and the Value of Tolerance
• Commerce, Utility, Character, and Republicanism
• Quintin Skinner and Western Political Thought
• Public Choice
• Editorial Board
• Contents of Vol. 33 No. 2
• Contents of Vol. 33 No. 3

The Costs of Regulating Market Information

George J. Benston

• University of Rochester

“An Appraisal of the Costs and Benefits of Government-Required Disclosure: SEC and FTC Requirements.” Law and Contemporary Problems 41 (Summer 1977): 30–62.

Expanded government-required disclosure of information by business is a legacy of the New Deal. More extensive mandatory disclosure gave the promise of less fraud on investors, better administration in the reporting corporations, more equitable and efficient capital markets, a more efficient allocation of resources, and greater governmental ability to manage the economy. While it is virtually an article of faith in many circles that government-required disclosure is a good thing, it could be that the costs of the SEC and FTC reporting requirements outweigh their benefits. Benston's investigations reveal not only that the cost of providing the required data is quite substantial, but also that the benefits to investors from the data are rather meager.

The Securities Act of 1933 and the Security Exchange Act of 1934 pioneered mandatory disclosure in the securities field. These and subsequent disclosure acts were intended to reduce fraud and inadvertent misrepresentation; reduce security price manipulation made possible through inadequate disclosure; enhance fairness to non-insiders; enhance public confidence in the securities market; increase the efficiency of making securities investments; and provide a greater flow and range of information to investors. Were mandated disclosures successful? “Little, if any, evidence supports the belief that these possible benefits have been achieved. Nor is there much, if any, evidence that is consistent with the claim that the Acts addressed a real problem. Furthermore, reason does not support the belief that the benefits claimed can be achieved or are indeed benefits.”

The FTC requires extensive reporting through its line-of-business report program. Under this program, certain businesses are required to collect and disclose detailed data on shipments, sales, advertising, profits, investments, and assets. The benefits claimed for the program range from improved anti-trust enforcement to enhancing labor's position in wage negotiations. Yet again, the promised benefits of disclosure turn out, upon investigation, to be little more than pious hopes. The FTC line-of-business categories for reporting do not represent a meaningful aggregation of data, and thus cannot realize the purported goals of FTC-required disclosure.

In light of this, why is government disclosure supported despite its cost and its failure to provide benefits? The answer, in part, lies in the public's apparent belief that government regulation of disclosure is beneficial and necessary. Another part of the answer is gained by asking who benefits from government mandated disclosure. The truth is that groups ranging from bureaucrats to financial analysts have a substantial interest in required disclosure. Nevertheless, if evidence can alter beliefs, there is hope for ending the counter-productive disclosure measures that are in large part a legacy of the New Deal.