It seems that the new administration will take the deregulate approach. This is good news.

What may not be so good news is that the CEO of Goldman Sachs, Lloyd Blankfein, doesn’t want it to happen. Who would have predicted that Wall Street would be opposed to deregulation?

Well actually, there is something that predicts it: public choice theory, and specifically the Baptist and Bootlegger analogy. In a nutshell, the Baptists and bootleggers, while on opposite sides of the issue, both wanted to outlaw alcohol. The Baptists for religious and moral reasons – the bootleggers because it would force people to buy alcohol from them.

The same concept applies to financial regulation. As Blankfein said in 2015:

More intense regulatory and technology requirements have raised the barriers to entry higher than at any other time in modern history…This is an expensive business to be in, if you don’t have the market share in scale. Consider the numerous business exits that have been announced by our peers as they reassessed their competitive positioning and relative returns.”

With a complex regulatory regime like Dodd-Frank, the big banks have the lawyers and compliance experts. They can compensate for the increased cost of doing business. The pro-regulation advocates, like Elizabeth Warren and Bernie Sanders, can feel better about themselves.

Meanwhile, those who can’t afford to handle the cost of regulation suffer, like smaller banks. So they go out of business, raise prices, or cut back on their products and services. The regulators feel good. The big banks manage. Consumers lose out.

If the CEO of Goldman Sachs is warning against repealing Dodd-Frank, you can bet that there will be continued opposition from Wall Street.

Hopefully, the new administration will keep this simple principle in mind: if those in favor of increased regulation happen to also be those regulated, maybe it isn’t a benefit for everyone else. Only by allowing free and fair competition and innovation to flourish will we protect and help consumers.