Assignment #2: Argument and Market Failure
When economic regulations or laws are proposed, it is usually because Congress or a government agency is
trying to solve what it perceives to be a problem caused by a market failure. You are a staff aide for a member
of the U.S. Senate who is considering what to do about the “fiduciary rule” proposed by the Obama
Administration and being reconsidered by the Trump Administration.
Your task is to take an economic argument and put it into language the Senator – your boss — can use to talk to constituents.
Requirements:
For this assignment, you will show that you understand how markets work and how markets can fail to work.
After the financial crisis of 2008, Congress enacted the Dodd-Frank Wall Street Reform and Consumer
Protection Act that included a wide variety of proposed changes in financial regulation. One of those dealt with
an attempt to protect individuals (“retail investors”) who receive investment information from financial advisors
– this has been referred to as the “fiduciary rule.”
The Obama Administration argued that individual investors (consumers of financial advisory services) needed
regulatory protection from the financial industry because advisors faced conflicts of interest when proposing
alternative investing strategies.
This was particularly important because these investments are expected to comprise a large portion of the investors’ retirement income (see the language of the White House Fact Sheet, April 06, 2016 ).
From this perspective, asymmetric information problems put consumers at a disadvantage in this market. Other potential market failures could be insufficient market competition (a significant number of financial advisors have this advantage over consumers) and systemic failures (insufficient individual retirement savings could put the economy at risk).
The critics of the “fiduciary rule” argue that the regulation increases the costs to consumers and will limit their
investment options (compare the Obama White House language with that of the Trump White House in the
Memorandum for the Secretary of Labor February 5, 2018 ). From this perspective, the market is the best protector
of consumer interests.
You should be able to discuss this issue using economic language, but also be able to explain it to noneconomists (in this case, telling a Senator how to discuss this issue with her constituents).
● Your introductory paragraph: introduce the problems of protecting individual investors from potential
conflicts of interests when receiving investment advice and explain if this represents a market failure. If
you proposed that there is a market failure, then you need to identify which specific failure and explain
how specifically the market has failed. If you believe that markets could work properly without
government involvement, explain how the market can address the concerns of those who advocate
government regulation.
● Your first body paragraph provides more specifics than your introductory paragraph and should
EITHER explain how market failures have caused the problems being discussed and how government
regulation would work to solve the financial advice problems (i.e. extend your introductory remarks to
demonstrate how the problems are the direct result of a market failure and how regulation addresses that
failure) OR explain how markets should work to efficiently supply the information that consumers are
purchasing, why market failures have not caused the problems posed by advocates of regulation, and
how such regulation would interfere with the market (i.e. extend your introductory remarks to
demonstrate how the problems we face are not the direct result of a market failure and how government
regulation would cause problems).
● Your second body paragraph should create a “counterclaim” or the best possible objections to your
argument which you present in the first body paragraph. This is the most challenging section of the
assignment as it requires you to think outside of your own operating logic. You are basically arguing the
other side here.
● Your third body paragraph should rebut the counterclaim and establish the superiority of your initial
position. Do not repeat the arguments made in the initial supporting paragraph, but rather point out the
inherent flaws of the counterclaim. It will also allow you to introduce new information as well.
Consider the following:
○ “Attack” the assumptions that the counterclaim is making
○ “Attack” the omissions that the counterclaim may have
○ Your own clever “attack”
● Your conclusion should clearly articulate the reader’s takeaway from your argument. How should this
shape their outlook and their position on this issue?
Formatting:
750-1000 words, 12 pt. Times New Roman
Single-spaced with double spacing between paragraphs; 1” margins on all sides
APA citations where needed and a works cited/references page
Assignment Due Date: week 5/Revised Assignment Due Date: week 6
Both completed versions (first and second) of the assignment will be submitted on Blackboard and must
be submitted before your section begins on the due date. First drafts are Pass/No Pass, with “No Pass”
resulting in one letter grade reduction from final assignment grade.
All late assignments are subject to a late penalty.