I admit that the boat analogy was pretty strained; I was just trying to point out that all responses to a given situation are not equally plausible, and the predominance of one over the other isn’t necessarily a result of bias. In this situation, the two most likely responses are increased regulation, or to do nothing at all and let the market sort it out. To loosen the rules after such a major fiasco just seems peculiar.

Comparing a regulation to a patch on a boat seems like a rather poor analogy to me. Regulations are rules governing behavior, which do not resemble what we know of material physics that well.

Recommending looser regulations in this circumstance would only make sense if one believed that overly burdensome regulations had somehow caused lenders to push bad loans on people who couldn’t afford them and didn’t understand them, and that the bond rating agencies were subjecting mortgage backed equities to too much scrutiny before slapping them with AAA ratings. It would be hard to make that case.

Your question about bias seems to suggest that both responses, tightening regulations and loosening regulations, are both equally plausible responses to a financial crisis, and that the tendency toward tightening regulations is somehow irrational. But before taking any action, a rational person should have some working model that explains why that action is appropriate. Increased regulation may not be the right answer here, but I would be stunned if decreased regulation somehow reduced predatory lending.

A quick example might help: If your boat springs a leak, a plausible response is to patch the hole, then bail out the water. It wouldn’t make much sense to start drilling additional holes in the hull, hoping that would somehow keep the boat afloat. Similarly, after you’ve patched the hole, a rational response would be to do nothing at all, unless another crisis emerges. Faced with a sound hull and no leaks, you wouldn’t start removing the plugs to see if the boat remained afloat. The patches were applied for a reason, and should be left there unless there is a compelling reason to remove them.

I think that explains the tendency toward increased regulations. The rules are intended to patch specific leaks while preserving as much free market exchange as possible. Sometimes the market and technology change enough that the regulations no longer serve their intended purpose, and should be removed. But removing regulations willy nilly, just because things are going well, would be an irrational action opening up the possibility of the same abuses that prompted the restrictions in the first place.

Jonathan, it seems you give reasons, but not rational reasons, for so believing.

Plausibly, it’s sensible to have more regulation when times are “bad” (= unpleasant and difficult) and sensible to leave things alone when times are “good” (= approximately optimal, as far as changes we can make are concerned). But those aren’t opposites, and perhaps in times that are “good” (= pleasant and easy) but “bad” (= suboptimal) it would often be appropriate to reduce regulation.

(”Plausibly” doesn’t mean “obviously”, though, and actually it’s not obvious to me that difficult times call for more regulation — it depends on the nature of the difficulty –; or that optimal times call for keeping things as they are — there might be predictable changes coming.)

And there’s another possible explanation if people call for more regulation in response to good news but not less regulation in response to bad news: there might just not be enough regulation. In this case there’d still be a bias at work, but not quite the one Robin’s framing suggests; and the “ratchet” at work might be not a unidirectional one, but one that ratchets up (conditional on bad news) in times of general underregulation, and ratchets down (conditional on something-or-other) in times of general overregulation.

Incidentally, “Caplan’s fallacy” dates back, in exactly the wording given here, at least to the BBC television series “Yes Minister” in the early 1980s, where it was called “the Politician’s Syllogism”.

If you believe regulators can foresee things and therefore prevent bad outcomes or ensure good ones, then the ideal number of regulators is very large: every decision can be made better (although presumably diminishingly so) by the use of more regulation.

Since many people are uncomfortable with real freedom, it’s not surprising they support ever escalating regulation.

The “regulation ratchet” may not be in any way different from the normal “ratchet effect” discussed by Robert Higgs in “Crisis & Leviathan” (which it would be interesting to see Naomi Klein review).