Regulation Ratchets

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1. [...] This post was mentioned on Twitter by Ryan Singer and s w, Raul Landa. Raul Landa said: The reason why we must always seek to DECREASE regulation, rather than just increase in when stuff goes wrong: http://ow.ly/1NrIg [...]

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2. [...] Robin Hanson’s regulation ratchet theory (via Bryan Caplan): Look, in any area where we let humans do things, [...]

   By Does Regulation Always Tighten? | The Incidental Economist May 20, 2010 at 12:01 pm

3. [...] From Robin Hanson's Regulation Ratchets: [...]

   By Friday morning links - Maggie's Farm May 21, 2010 at 5:56 am

4. [...] some back-and-forth in the comments, Hanson clarified the scope of his regulation ratchet theory in an addition to his original post. I’m not saying there there aren’t many other [...]

   By The Regulation Ratchet, Revisited | The Incidental Economist May 21, 2010 at 6:05 am

5. Spending Ratchets…

   I really liked this Robin Hanson post a week ago: (regarding the BP oil spill, at least at the moment) Look, in any area where we let humans do things, every once in a while there will be a big screwup; that is the sort of creatures humans are. And if …

   By Sinners in the Hands of an Angry Blog May 23, 2010 at 11:33 pm

6. [...] typing too slow.”  But he should have been.  And I’m very amused to see Robin Hanson get in touch with his inner Stigler: Look, in any area where we let humans do things, every once in a while there will be a big [...]

   By The Fundamental Problem With Financial Reform at Hispanic Pundit June 1, 2010 at 3:32 am

54 Comments

1. mattnewport

   May 19, 2010 at 8:58 pm | Reply

   I’m no fan of regulation but financial deregulation in the late 90s seems like a counterexample to your theory. The lack of major financial disasters and the apparent relative stability of the system were pointed to as reasons why weaker regulations were justified. I think you can make a good case that much of the ‘deregulation’ was not true deregulation but rather ‘reregulation’ – changing regulations to favor incumbents even more – but the lack of recent major disasters was used as a justification for deregulation.

   • Jayson Virissimo

     May 20, 2010 at 2:13 am | Reply

     Can you operationalize the “amount of regulation” in such a way that if we were to examine it, it would seem to have gone down in the 1990s? If not, then this isn’t really a counterexample.

   • Proper Dave

     May 20, 2010 at 6:33 am | Reply

     Sorry the “ratchet effect” is BS, simple as that.
     The 80′s and 90′s deregulation didn’t happen?
     Because I don’t get salmonella in the EU the regulations should be weakened?
     I didn’t know causality has gone out of fashion in science and rationality…

     • Jayson Virissimo

       May 20, 2010 at 1:21 pm |

       I am prepared to change my mind when I see some numbers (even if it is a very flawed metric), but often the numbers don’t match the official narrative. Supposedly, the Reagan Era was a time of shrinking government, but if I look at the actual government spending per capita, it is steadily increasing.

       I await hard data that can reasonably be interpreted as showing a decrease in regulation during the 1990s.

2. Mark Dionne

   May 19, 2010 at 8:59 pm | Reply

   I think it’s wrong to measure regulation just on a strong/weak axis. Sometimes you just need DIFFERENT regulation because technology or other things change.

   And in the financial case, we had better regulation years ago, but we let some of the rules get removed or stopped enforcing them.

3. Aaron D. Ball

   May 19, 2010 at 9:03 pm | Reply

   Robin, it seems disingenuous of you to ignore that in a broad class of cases, there is constant pressure to reduce regulation: firms like BP and Goldman Sachs would prefer a regulatory environment in which they had more freedom to drill or make deals, and in which they have less liability when things go wrong; and they have lobbyists through whom they exercise influence in that direction.

4. Bill

   May 19, 2010 at 9:05 pm | Reply

   This comment is not what I would have expected.

   Is this the place where there was a request for funding for very low probability events (such as asteroids hitting earth), and now I hear a denigration of regulation designed to prevent low probability events?

   Aren’t they the same thing?

   • Robert Koslover

     May 19, 2010 at 9:23 pm | Reply

     Bill, what about the “low-probability” that over-regulation might result in reduced freedom, reduced productivity, and overall more miserable lives for all human beings. What “regulation” can we put in place to protect us from that “low-probability” event?

     • Adam Hyland

       May 19, 2010 at 9:37 pm |

       Look at it this way. How miserable are you willing to make an aircraft mechanic in order to ensure that he puts the right part in the right plane? How miserable are you willing to make surgeons to ensure that they operate on the correct arm?

       When we talk about low probability events we must be very careful to distinguish the risk profiles of different agents. Perhaps I as a coastal resident have a different opinion about the marginal value of rig maintenance than does the operator of the rig. If this is the case, how can I align my incentives with his? Do I not buy his oil? How do I know how is a risky rig operator and who is a risk-averse rig operator ex ante? And ex post, who really cares? My beach house is covered in oil. Or I’m killed in a plane crash, or I have my left arm amputated and a tumor still in my right arm. I or my family can be ‘made whole’ through tort law, but does that really shift the risk-preferences of the rig operator sufficiently?

       This isn’t a dictatorship. I want an ability to adjust that operator’s risk-preference because I have a stake in his actions. I don’t want to dictate it. So unless we have a complete market for contingent outcomes (a Coasian market), I have to take the next best option, asking the government to help shift his risk preference.

       Just like JHACO (now the Joint Commission) forces hospitals to care more about patient and site identification before they operate than they would otherwise given the impacts of bad press and lawsuits, and just as the FAA/NTSB force airlines and airframe manufacturers to operate more safely than they would otherwise, so should the interior department force rig operators to operate more safely. And they do force them, for the most part.

       And they do make them more miserable than they otherwise would be, in exchange for a lower probability of a catastrophic event.

     • Bill

       May 19, 2010 at 9:38 pm |

       There is federally mandated cost benefit analysis in federal regulation, so I am not worried about that.

     • Robert Koslover

       May 19, 2010 at 9:45 pm |

       Adam, I think your arguments are very reasonable, even though I may favor less regulation than you.

       Bill, regarding your comment that “[t]here is federally mandated cost benefit analysis in federal regulation, so I am not worried about that.” … Now that is really a very funny thing to say. It reminds me of that scene in Casa Blanca: http://www.youtube.com/watch?v=T1DEG6BWgp0&feature=player_embedded

     • Bill

       May 19, 2010 at 10:25 pm |

       Robert, There are actually serious people in the world, believe it or not, and there are actually federal statutes enacted in the late 70′s and early 80s during the Reagan administration that mandate cost benefit analysis.

       I am sorry that this does not comport to your belief, or your desire for irrationality, but, sadly, it is what it is.

       Now, unfortunately, there is no movie for my serious point.

     • Seth

       May 20, 2010 at 5:41 pm |

       “I have to take the next best option, asking the government to help shift his risk preference.” -Adam H.

       Nice write-up, but have you considered that asking the government to do this may not be effective or may improve the chances of a negative outcome by shifting accountability from the rig operator to the government?

       “I or my family can be ‘made whole’ through tort law, but does that really shift the risk-preferences of the rig operator sufficiently?”

       Nothing is foolproof enough to avoid tragedies. I’m not convinced government regulation reduces the incidence of tragedies. It’s very possible it increases it.

       Tort law is not the only thing influencing the rig operator’s risk-preferences. I’d consider that the rig operator’s risk profile is even more conservative than the beach house owner (as evidenced by buying a beach house in hurricane country). But, even with that, as the bumper sticker from the the 80s warned us, S*** Happens.

   • Bill

     May 19, 2010 at 9:42 pm | Reply

     Robert, here is an example of federal cost benefit regulation:
     http://ceq.hss.doe.gov/nepa/regs/ceq/1502.htm#1502.23

     There is also a federal cost/benefit hurdle statute; I believe it is through OMB.

5. Robert Koslover

   May 19, 2010 at 9:18 pm | Reply

   I think that in many cases the raw desire to expand regulations (regardless of what the subjects of the regulation might be) exists long before the big accident. I.e., the big accident is simply an opportunity. And as Mr. Regulation himself, Rahm Emanuel, duly noted, “[y]ou never want a serious crisis to go to waste.”

6. Frater Plotter

   May 19, 2010 at 9:19 pm | Reply

   We have examples of markets in which “the maximum possible regulation” has been implemented. These include the markets for illegal drugs, prostitution, child pornography, stolen goods, and murder (hit men). Examining these cases reveals that even implementing the maximum possible regulation does not prevent these things from causing harm.

   Banning something does not make it go away; it merely authorizes the law enforcement system to punish those who disobey the ban. Similarly, regulating something to a less-than-maximum extent (for instance securities or oil drilling) does not make violations of those regulations go away; again, it merely authorizes punishment of people who do violate them.

   Even this punishment, though, is dependent on law enforcement actually acting effectively. They may fail to do so for any number of reasons — such as shortage of resources, political pressure or other forms of status seeking, red tape, ignorance of the law, general incompetence, various cognitive biases, plain bigotry against the victim, or corruption.

   In short, regulation can only be as beneficent and capable as those who are employed to enforce it. If the SEC does not have the resources to enforce existing securities regulations, adding new regulations will not accomplish much. If the police are being bought off by the cocaine smugglers or the pimps, legislators will find it hard to have any effect cracking down on cocaine or prostitution.

   • billswift

     May 20, 2010 at 1:37 am | Reply

     Also if there is enough value in doing something, regulating it or making it illegal tends to increase the risks and the returns to doing it. Illegal drugs cost many times what the drugs would actually bring in an open market. If short selling, for example, was made completely illegal, any one who could do it without getting caught (through concealment, bribery, or whatever) could make much more than short sellers on an open market where there is more competition.

7. Popeye

   May 19, 2010 at 9:25 pm | Reply

   Seriously? We have already forgotten the Reagan/Thatcher revolution, the great moderation, a booming financial sector driven by brilliant innovation, Alan Greenspan’s tenure at the Fed. I suppose that a libertarian economist could hardly be expected to be familiar with any successful efforts at deregulation. Why would someone who spends his time arguing that decisions should be made by futures markets have any knowledge with how politicians and the public understand markets?

   Sheesh.

8. Adam Hyland

   May 19, 2010 at 9:26 pm | Reply

   Bruce Schneier has a general comment about “worst case scenario” thinking which relates somewhat. In it he outlines the social and policy pitfalls in designing rules in order to accommodate hypothetical or simply extreme scenarios. And he has a lot of valid points. Paralysis is a definite cost, yet no one person gets punished for paralysis. You can bet that more people will lose their job over this spill (As they should) but no one really loses their job over a general slowdown. Schneier is criticising hypotheticals, so not all of his comments apply, but most can be translated.

   However I think some serious consideration needs to be given to what specific regulation might look like and how it would have impacted the crisis were it in place beforehand. Unlike the financial crisis, where we can have political debates about which causal factors were sufficient and which merely necessary, here we can pinpoint what physical devices or procedures would have stopped the spill had they been installed properly.

   Take the blowout preventer. Had it been installed with a proper actuation valve and had there been a system in place to check for dead batteries and broken hydraulics (or designed to avoid either contingency) the bulk of the leak would be stopped and the issue would be a minor hit in the bottom line for BP. That isn’t some inchoate target. Quality assurance and planned maintenance would have prevented the disaster in the same way that they prevent airplanes from falling out of the sky or prevent nuclear submarines from being lost at sea. Obviously risk cannot be eliminated but a properly designed and tested system (and something designed to work a mile underwater ought to be designed like it is being sent to the moon) can minimize that risk to the point where appropriate QA and maintenance tracking can drop it to nearly zero.

   Instituting those maintenance and QA controls is unpleasant, expensive and slow. I can bet you that a QA regime already exists for oil rig components but if the information about the blowout preventer is true, the regime is insufficient or hasn’t been followed. A regulator inserts a nominally disinterested third party to follow up on QA and maintenance actions, just like the FAA certifies QA paperwork for airline maintenance and the Naval Sea Systems Command certifies QA for submarines. Without that supervision QA regimes work most of the time, but with it, skirting becomes more challenging and it becomes more difficult for a manager to skimp on maintenance in order to meet the bottom line.

9. Drewfus

   May 19, 2010 at 9:44 pm | Reply

   The fundamental premise of regulation, is that the regulators are more honest and consumer oriented than those being regulated.

   What is the theory and evidence that supports this?

10. Aron

    May 19, 2010 at 9:45 pm | Reply

    Hard to make accurate policy without data points. I made this same argument 6 hours ago, and was disappointed that the other party took it rather in stride. Between them and this post, it appears I’ll have to get more clever, but at least I can reasonably know that now.

11. blink

    May 19, 2010 at 10:35 pm | Reply

    Even if you’re right about the ratchet effect tending toward prohibition, the time frame matters a lot because of innovation. So what if horse-and-buggy regulations basically outlaw the activity? We have enough better options for transportation that no one would notice. While I would prefer less regulation, as long as we innovate faster than the regulation ratchet ticks along we will do well.

12. Kakun

    May 19, 2010 at 10:44 pm | Reply

    “How strong would regulations have to be before you’d say that a prolonged period of no big disaster suggests we need weaker regulations? When did you last hear someone using this reason to suggest we weaken a particular regulation?”

    Right before the financial crisis. Notably, many of the members of the elite who were opposing regulation then are still opposing it now.

    I don’t understand what your claim is- are you arguing against any individual who believes that regulation should be higher than the current level, both pre- and post- crisis, or are you arguing that this is a semi-universal belief? If the former, then why are you focusing so strongly on the pro-regulation side, and ignoring the fact that the exact same phenomenon occurs amongst opponents of regulation? If the latter, then how do you explain periods of deregulation?

13. Microbiologist

    May 19, 2010 at 11:13 pm | Reply

    I am staunchly green. And I realize a bunch of piping plovers are gonna get wasted from the oil spill — as they get wasted every day by peregrine falcons, microbes, parasitic worms, and so on. But they’ll grow back. Is the oil going to cause any long-term consequences?

    • billswift

      May 20, 2010 at 1:45 am | Reply

      You might find Wheelwright’s “Degrees of Disaster” about the Exxon Valdez spill in Alaska interesting. He makes a good case that the mandated clean-up actually did more damage to the local ecology than the oil did.

    • Dre

      May 20, 2010 at 2:26 am | Reply

      If it gets into mangrove swamps it will.

14. Jon

    May 19, 2010 at 11:16 pm | Reply

    I guess when the Mineral regulators are throwing cocaine parties and fucking the oil industry they’re supposed to be regulating, we’ve got a problem.

    I guess when Transocean wants to keep pressure by flushing mud down the driller, and BP says no to simply “speed it up,” we’ve got a problem.

    I guess when Dick Cheney, who’s firm Halliburton cornered the market during his vice-presidency on oil piping, deregulates the need for blow-out-preventers to save piss-change, we’ve got a problem.

    The problem with regulation is directly tied to the strength of the United States government. And frankly, when one political party in office for 8 years runs on a platform that government is bad, inefficient, and overbearing, we shouldn’t be surprised when it turns out so. Republicans have no interest whatsoever in running a country. Now, there are many corporate Democrats who aren’t either, and over the last decades we’ve seen a large decrease in the number of lawmakers in Congress, now mostly full of pandering politicians, but that doesn’t discount that regulations are in place to protect the American people. Obviously a 500,000$ state of the art blowout preventer would have been a better choice than the gigantic fuck up we’re currently witnessing.

    As for off-shore drilling? There’s 31,000 drilling rigs currently operating in the gulf. Obviously we shouldn’t stop them all, but we can ensure that each one of them has a working blow-out preventer, especially when we’re drilling at such depths that when catastrophe strikes it outclass all our human ingenuity to deal with the problem. And yet, for all our drilling, for all the oil that’s just waiting there to be used, the undeniable fact is we are past peak oil, the price of oil will never change as a result of our domestic production increases, it’s our insatiable demand that is the problem, as well as the developing worlds continued industrial revolution.

    I have no problem continuing off-shore drilling to our maximum capacity, but I do have a problem with the way the industry is regulated right now: it needs to change. And the retarded msm meme that increasing our domestic production will impact our prices? That type of rampant stupidity is what’s killing our country.

15. Linda Gottfredson's Apprentice

    May 20, 2010 at 12:24 am | Reply

    Politicians need regulations, it is their raison d’etre. They need to look like they are doing things so that the general public won’t cotton that it’s all a big scam …

16. stephen

    May 20, 2010 at 8:52 am | Reply

    I would say the 80′s through the early 90′s was the last time we experienced a major hairdressing disaster.

17. Drewfus

    May 20, 2010 at 9:22 am | Reply

    @Kakun
    “…how do you explain periods of deregulation?”

    There are no such periods. The Federal Register has occasionally stopped growing for short periods, but it never gets smaller.

    Your mistaking rhetoric for reality.

    • Kakun

      May 20, 2010 at 6:38 pm | Reply

      The Federal Register isn’t a particularly brilliant proxy for levels of regulation, since, IIRC, it’s mostly internal government documents, and it also records changes to rules, so deregulation (i.e. a change to the current laws to remove regulation) would add to its length.

18. Erisiantaoist

    May 20, 2010 at 9:25 am | Reply

    I’m going to bite the bullet and say I’d have no problem completely outlawing activities with as much of a propensity for large-scale disaster as undersea drilling without good blowout prevention.

19. Buck Farmer

    May 20, 2010 at 9:26 am | Reply

    Regulation upratchet is countered by the fact that many regulations benefit a diffuse group while inconveniencing a concentrated group.

    Low-probability events that effect a broad population effect (in expectation) many people a very small amount (all people living near oil rigs once every few decades). Regulating them effects a few people a very large amount (oil companies 24/7).

    This is the flip-side of why we have pork-barrel spending. The benefits go to a concentrated group (cronies) and the inconvenience is spread over a diffuse group (the taxpayers).

    The only place where this counter should cease is when the entire ecology has adapted to the regulatory inconvenience. Presumably a finance house that makes 50% of its revenue from designing instruments to avoid taxes is not going to advocate for a simpler tax code.

20. stephen

    May 20, 2010 at 9:28 am | Reply

    It seems that there are two different arguments that are easily conflated:

    1) X should be deregulated because regulation of X is “harmful”, “immoral”, unintended consequences, whatever.

    2) X should be deregulated because Y has not occurred in a sufficient amount of time.

    It seems that there are examples of when argument 1 has been used to push for deregulation, as a few folks have pointed out. However, I can’t recall argument 2 ever being advanced in any serious manner.

    Further, I would say argument 1 is primarily concerned with high frequency, negative events. While argument two is primarily concerned with low frequency, negative events.

    I agree with Robin. There does seem to be an asymmetry here. Perhaps we aren’t very capable of being rational about one end of the power law distribution.

    • Popeye

      May 20, 2010 at 10:58 am | Reply

      Huh? If we evaluate regulations using some sort of cost-benefit analysis, we must, uh, compare the costs to the benefits. This is not “conflating” two distinct arguments, this is looking at two sides of the same coin.

      I guess the Great Moderation of 1982-2008 has just disappeared down the memory hole. Remember Alan Greenspan, that guy who guided the economy through an era of unprecedented prosperity and stability, an era unfazed by deep recessions and financial panics? Yeah, me neither, he was a pretty obscure figure who never received much veneration. Everyone has always understood that we could have a global financial crisis at any moment, they just thought that the high-frequency, low-severity gains from keeping credit derivative trading free from regulation were too important to pass up. Wait, I mean, no one has ever understood this, because people aren’t capable of being rational about one end of the power law distribution.

      Geebus. For someone who spends a lot of time writing that people are status-seeking hypocrites, Robin doesn’t seem to be too aware of the fact that 90% of the posts on this blog are attempts to theorize about why people are too deluded/dishonest to agree with him on his pet issues. “Overcoming bias” is really about “rationalizing disagreement by positing hypocrisy and bias.”

      • stephen

        May 20, 2010 at 12:01 pm |

        Your right. My comment was what first popped into my head after reading the post and skimming the thread. I saw two complimentary arguments where I shouldn’t have. Anyway, I was wrong.

      • stephen

        May 20, 2010 at 12:03 pm |

        “You’re right”. sorry.

21. Frank Lantz

    May 20, 2010 at 10:35 am | Reply

    Seems like the regulation ratchet effect is related to the directional nature of prohibitions which only operate to forbid action.

    Most regulations that you don’t make an effort to maintain decay over time. In a landscape where all the towers of forbidden action are slowly sinking into the sand you can have policy that only ever raises their height and still be in an equilibrium that isn’t total prohibition.

22. cb

    May 20, 2010 at 10:40 am | Reply

    Are you joking with this post?

    We’re 30 years into the biggest deregulation period in U.S history: airlines, banking, telecoms, and more have all seen huge decreases in their regulation since 1980 or so. Glass-Steagal repeal, Financial Modernaization Act, etc.

    And while in many industries, such as off-shore drilling, we haven’t seen a repeal of significant regulations, we’ve witnessed a relaxed attitude toward regulatory enforcement by the regulators.

    All of this was due to two beliefs: that markets are largely self-regulating and that technology/knowledge had improved to the point that regulated activities were safer.

    And finally, hairdressing disaster? I’m just going to assume that was a joke, for your sake.

23. Thom Blake

    May 20, 2010 at 12:26 pm | Reply

    >(E.g., when was the last big hairdressing disaster?)

    This is funny, because one of my favorite examples of changing regulations is in hairdressing.

    When Vidal Sassoon tried to move into New York, they tried to make his hairdressers go through certification to handle the dangerous chemicals used at the time. He resisted, since his styles did not use those dangerous chemicals. It finally came to a head when he personally took and failed the certification test, making a mockery of New York’s process, leading to changing (but not removing) the certification process.

    Skip forwards a few decades and African hair braiding shops start to open, and are faced with a similar problem; the things they do are not the sorts of things in which you need to be proficient in order to pass the certification test; many do not even offer haircuts.

    Hat tip to Virginia Postrel.

    • Robert Koslover

      May 20, 2010 at 1:36 pm | Reply

      Your comment about hairdressing: “It finally came to a head…” Ha ha. I do admire your choice of words, sir!

24. deregulation

    May 20, 2010 at 2:34 pm | Reply

    In the post soviet block you could argue that privatization of state companies is making less of people’s activity regulated. So you can observe other trends in the world. Well, but the reasons are more complex than just the fact that property doesn’t cause disasters. Another case with social order of Iraq when Saddam was alive. The US troops came and deregulated their system of rules. Well, they drafted new laws soon afterwards, but still.

25. Steve Sailer

    May 20, 2010 at 4:13 pm | Reply

    E.g., when was the last big hairdressing disaster?

    When was Lady GaGa last seen in public?

26. Robin Hanson

    May 20, 2010 at 4:42 pm | Reply

    All, anyone care to list current regulations they think we should weaken mainly because of a lack of recent disasters?

    Matt and others, I didn’t claim regulations never changed, nor even that lack of disaster is never offered as a reason.

    Mark, I didn’t say there aren’t other dimensions to regulation besides strong/weak.

    blink, yes if old regulations aren’t interpreted as applying to new industries the ratchet rate may fall behind the innovation of new industries rate.

    Kakun, see stephen; yes of course there are periods of deregulation, but those are usually not argued for on the basis of a lack of recent disasters.

    Frank, what is the evidence that regulations tend to decay?

    • Hopefully Anonymous

      May 22, 2010 at 9:48 pm | Reply

      A simple one is that plane travel is probably too safe. The safety measure probably cost in efficiency resulting in greater persistence risks and lower quality of life for all of us.

      On the other hand, a portion of the population gets very anxious about plane disasters unless a certain level of safety is maintained.

      A lot of regulation seems to me to work that way. Once we move beyond social contract to maximize persistence odds to some other thing, it all becomes an arbitrary game filled with rent-seeking hecklers or random traders anyways, from my perspective.

27. Dylan

    May 20, 2010 at 5:00 pm | Reply

    Robin,

    I think your general argument doesn’t work for a couple of reasons. The first is that there have been very real and very recent arguments for deregulation. This seems to have been sufficiently addressed in the comments, so I won’t further belabor the point.

    The second is your “big hairdressing disaster” analogy is broken. There’s greater pressure to regulate activities that have a large potential negative effect on the public in general. I’m finding it quite difficult to imagine what exactly would constitute a big hairdressing disaster. The lack of a big hairdressing disaster is evidence of… nothing at all.

    If you’re going to make an argument from the lack of catastrophes in a a lot of industries, you first need to restrict your consideration to industries which are capable of having one.

28. Dylan

    May 20, 2010 at 5:03 pm | Reply

    And another point: the lack of disaster, per se, will never be a good argument for weakening regulations, only for not strengthening them.

    I haven’t blown a head gasket in my car, but that doesn’t mean I’m going to stop getting oil changes.

29. Popeye

    May 20, 2010 at 5:29 pm | Reply

    http://en.wikipedia.org/wiki/Deregulation#Deregulation_1970-2000

    I swear to God, how can you have followers of Milton Friedman and Gary Becker who use their arguments but are completely unaware of any practical effect those arguments have had on the world? Does Jesse Jackson have a blog somewhere where he asks if anyone knows of any successful movements to improve civil rights for black people?

30. Opir

    May 20, 2010 at 11:27 pm | Reply

    We should have periodic regulatory reviews. I agree with one of the above posters who states that it’s not as simple as strong/weak, but of currently useful/not useful. It could go several different ways:

    Existing regulation gets stronger
    Existing regulation gets weaker
    New regulation added
    Existing regulation removed and different one put in its place
    Existing regulation removed and not replaced

    This would be determined using a variety of methods.

    Bottom line: we could weaken, remove, change, or add regulations, and should do so on a regular basis. It shouldn’t be framed as “strong/weak” but as “right balance and mix.”

31. wolfwalker

    May 21, 2010 at 6:28 am | Reply

    Robin, you asked:
    

    How strong would regulations have to be before you’d say that a prolonged period of no big disaster suggests we need weaker regulations? When did you last hear someone using this reason to suggest we weaken a particular regulation?

    Someone else mentioned the repeal of Glass-Steagall, but didn’t go into detail. He was referring to the Banking Act of 1933, a Depression-era banking-regulation law which (among many other things) separated commercial and investment banking. That particular aspect of Glass-Steagall was repealed in 1999, and commercial banks promptly plunged deep into investment banking. The financial panic of two years ago, and the ongoing credit crunch, happened in large part because the investment arms of several enormous banks got too deep into speculative instruments like mortgage-backed securities. When the real-estate bubble burst, those banks were faced with gargantuan losses that threatened their whole operations, including conventional banking operations like checking accounts, mortgages, loans, and credit cards.

    If Glass-Steagall was still in effect, the speculative frenzy in mortgage-backed securities might never have happened. Even if it had, it would have remained restricted to the investment-banking field, and not directly affected commercial banking. It would have still been a financial disaster, but it probably wouldn’t have rocked the entire global financial system the way it did and is continuing to do.

    • Popeye

      May 21, 2010 at 1:51 pm | Reply

      I don’t think Glass-Steagall had much to do with the mortgage-backed security problem. Many of these “speculative instruments” had AAA ratings and were considered safe investments. Also, investing in mortgage-backed securities is not synonymous with carrying out investment backing. Finally, most of the key players in the credit crisis were either non-banks (AIG, Fannie, Freddie) or investment banks that were not affected by Glass-Steagall (Bear Stearns, Lehman) and in fact were bailed out by non-investment banks (not possible if Glass-Steagall had not been repealed).

      .

32. Mike

    May 22, 2010 at 10:18 am | Reply

    I would expect regulation to grow like other designs grow, including biological designs, primarily by accretion. I expect this is a feature and not a bug. And indeed, evolution does “delete” parts of its designs with some regularity, and when it deletes something useful, it self-corrects. Regulation seems to do the same.

    But overall the complexity grows, with the human, esp. the brain being pretty amazingly complex, just as current federal regulation is pretty amazingly complex.

    I would suggest that a belief that the default is that we are better off without regulation is a bias to overcome. Overall, our productivity tracks the amount of regulation we have over broad periods of time. Even at a given time, the most productive states are the most regulated. There is no great outpouring of wealth creation in unregulated Africa right now. The prima facie case is regulation is generally just another kind of infrastructure, some designed better than others, but generally something that once put in place enables, overall, significant gains in efficiency.

33. Alice de Tocqueville

    May 22, 2010 at 1:59 pm | Reply

    The author doesn’t seem to give any weight to the idea that existing regulations may be preventing a disaster, and therefore, lack of a disaster wouldn’t necessarily suggest a reason to lower regulations.

34. Josh

    May 22, 2010 at 8:42 pm | Reply

    Can we agree that regulation “ratchets” up in a time of crisis because the political will is there? And deregulation can and does happen when special interests are able to lobby without the public noticing, i.e., when there hasn’t been a crisis in a while.

    Politics aside, of course a crisis doesn’t always point to the need for better regulation. But given the influence of the energy industry and the problems with the Mineral Management Service, along with questions about the blowout preventer, it seems to me that the scrutiny this crisis has brought may be beneficial.