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 …

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.

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.

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.

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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 That particular aspect of Glass-Steagall was repealed in 1999, and commercial banks promptly plunged deep into investment banking.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.