In the latest Capital Ideas episode, hosts Nick Morgan, Dara Albright, and Mark Hiraide of the Investor Choice Advocates Network (ICAN) sat down with Cliff Winston, a non-resident senior fellow at the Brookings Institution, to discuss his recent book, Market Corrections, Not Government Interventions: A Path to Improve the US Economy.
The conversation arrived at a critical moment, as the newly constituted Securities and Exchange Commission (SEC) evaluates disclosure regulations that have largely remained unchanged since before the internet era.
Winston’s framework offers a fresh lens for examining longstanding securities regulation policies, from quarterly reporting requirements to accredited investor restrictions. His central thesis:
While government intervention can address market failures in theory, practice often reveals a different story—one where compliance costs mount, innovation stalls, and private market solutions are crowded out before they can emerge.
The Policy Analysis Framework: What Are We Really Trying to Accomplish?
Winston began by establishing two foundational questions that should underlie all policy analysis but rarely do.
First: What are we actually trying to accomplish?
“Too often people want to make policy. I want to do this, I want to do that,” Winston explained. “And then there’s one fundamental question you ask them: What are you trying to accomplish? And then you get sort of radio silence at that point.”
The second concept Winston emphasized is the counterfactual—a discipline borrowed from economics that asks what would happen if a particular policy never existed, with everything else held constant.
He illustrated this with the classic film It’s a Wonderful Life, where Jimmy Stewart’s character sees the world as if he’d never been born.
“That is what policy analysis is all about,” Winston said. “Constructing a counterfactual and asking yourself, everything else constant, what is this policy really accomplishing?”
This framework has direct implications for securities regulation.
When Congress enacted disclosure requirements in the 1930s, the goal was to prevent another market crash and the Great Depression.
But Winston’s analysis suggests policymakers rarely revisit whether those interventions remain the most efficient means of achieving their stated objectives—or whether markets have evolved to address the problems independently.
Information Asymmetry and the Disclosure Regime
The conversation turned to information asymmetry, the textbook market failure that has justified securities disclosure requirements for nearly a century.
Winston acknowledged that information gaps exist—investors may not know what company insiders know—but questioned whether mandatory disclosure is the optimal solution.
High-profile fraud cases like Bernie Madoff and Theranos involved extensive disclosure requirements and regulatory oversight but failed to prevent investor harm.
The SEC’s exam staff had visited Madoff’s firm on multiple occasions and did not uncover the failure to disclose. Yet private actors succeeded where regulators failed.
Similarly, with Theranos, a Stanford faculty member warned people that Elizabeth Holmes “cannot produce what she’s saying she’s producing in these blood tests.”
Winston emphasized this pattern:
“This is sort of now important to also then bear in mind in terms of is really government essential? Are they effective? Can the private sector do something?”
The Compliance Cost Nobody Measures
One unintended consequence of expanding disclosure requirements has received insufficient attention: compliance costs.
Winston noted that these costs greatly benefit the legal profession.
“We spend in this country a huge amount on compliance costs. And guess who’s actually doing that work? The legal profession.”
The cascading effects extend beyond legal fees.
“You’re going to get somebody to go through this and see, go first have to go through, okay, what exactly needs to be provided, right? Then they have to go through it, make sure you’ve done it, check it over again. You know, the clock’s ticking.”
Winston’s assessment:
“In the case where I do mention this in the book, my sort of bottom line in looking at a lot of these information policies is that they actually have no effect. They just don’t do all that much in terms of benefiting consumers or even firms. However, they do impose costs on both taxpayers and firms.”
Morgan connected this to current debates:
“Since 1933, that thinking has created, well, if a little bit of disclosure is good, then a lot of disclosure is even better. So there have been more and more and more disclosures for public companies.”
One documented consequence: fewer public companies.
“There doesn’t seem to be much pushback on more disclosure,” Morgan observed, noting that mandatory disclosure “seems to be the sort of answer every time we have a crisis in the securities markets.”
Professional Licensing: A Deeper Regulatory Failure
The conversation expanded to professional licensing, where Winston sees an even more troubling pattern that he has written extensively about. Extensive licensing requirements justified by information asymmetry may not be serving their intended purpose.
Winston focused on the legal profession, where the American Bar Association accredits law schools and states require bar passage for practice. The stated rationale: consumers cannot assess attorney quality.
But Winston argued the system functions primarily as an entry barrier that raises costs without improving outcomes.
He cited the story of askmelaw.com, where someone anonymously answered legal questions and became “the most popular blogger in the blogosphere on legal questions. Then the world was shocked when they found out he was a 15-year-old high school student.” The teenager would research questions at the library and provide accurate answers.
“In the AI world, you don’t need anybody,” Winston continued. “I could go ask Gemini about any legal problem. Look, I have Dr. Google as one of my suppliers on medical care. Why not Dr. Google or Dr. Gemini for legal advice?”
The parallel to securities licensing is direct.
Broker-dealer registration, investment adviser licensing, and various professional certifications all operate under similar rationales and create similar barriers to market entry.
Winston’s point: information asymmetries that may have once been used to justify licensing requirements may no longer be necessary or fit to their purpose.
When Government Blocks Market Corrections
Winston provided concrete examples where government intervention prevents superior market solutions from emerging. In the airline industry, he noted that Emirates, Singapore Air, and Qatar Airways offer exceptional service but cannot serve U.S. domestic routes due to cabotage restrictions—laws preventing foreign carriers from operating domestic flights.
The railroad industry presented another example.
Once heavily regulated as a “natural monopoly,” railroads became viable investments only after deregulation.
“Warren Buffett wound up investing in a railroad, Burlington Northern. Well, he was never going to do that when they were regulated,” Winston explained. “Once they were deregulated, they’re a much more viable entity and are doing better.”
In capital markets, the parallel is clear. Regulations intended to protect investors—from accredited investor restrictions to disclosure requirements—may actually prevent market solutions from emerging while imposing substantial costs that drive companies away from public markets.
Rethinking the Great Depression Narrative
Winston traced current securities disclosure requirements to the government’s response to the 1929 crash and subsequent Depression.
“The government did not want another Great Depression, and they thought, well, you know, the collapse of the stock market certainly was a contributor.”
But he questioned whether disclosure mandates were the most efficient response or, even if they were effective under the conditions that existed in 1933, whether they remain the best response now.
The timing of this conversation is particularly relevant as the SEC evaluates disclosure requirements and other regulations dating to the pre-Internet era. Winston’s framework suggests several questions policymakers should address:
First, what are disclosure requirements actually trying to accomplish? If the goal is preventing fraud, are mandatory disclosures the most efficient means, or do private information intermediaries and reputational mechanisms work better?
Second, what is the counterfactual? If disclosure requirements never existed, would private markets have developed information-sharing mechanisms?
Evidence from successful private actors detecting fraud suggests they would.
Third, what are the true costs? Compliance expenses, reduced numbers of public companies, and constrained capital access all represent real costs that should be weighed against benefits.
Finally, is regulation blocking market corrections? Restrictions on who can invest, how companies can raise capital, and what intermediaries can operate may prevent superior solutions from emerging.
The Path Forward
Winston’s concluding insight applies directly to capital markets reform: The presumption that government intervention improves on market outcomes remains deeply embedded in regulatory culture.
Challenging it requires not just theoretical arguments but empirical evidence of how markets adapt, correct, and sometimes outperform prescriptive regulation.
As ICAN’s work demonstrates—from challenging accredited investor restrictions to advocating for regulatory reform—questioning inherited assumptions about when government intervention helps versus hinders capital formation has never been more important.
Winston’s book provides the analytical framework. The question now is whether policymakers will apply it.
Nick Morgan is President and Founder of ICAN, the Investor Choice Advocates Network, a nonprofit public interest litigation organization dedicated to serving as a legal advocate and voice for everyday investors and entrepreneurs. He was previously a partner in the Investigations and White Collar Defense Group at Paul Hastings law firm. Morgan previously served as Senior Trial Counsel in the SEC’s Division of Enforcement. Capital Ideas is a series created by Morgan and Dara Albright.