Monday, March 2, 2009

On the Wisdom of Increasing Regulation

Here's another email debate with my smart liberal email buddy:

MN: I just had dinner with an ERISA attorney. ERISA was passed to stop companies from comingling employees' retirement funds with the corporate general fund. Like most government regulations, in original conception it made sense but, over time, it metastasized into a monstrous, strangling cancer. My dinner partner (a liberal Democrat) smilingly agreed that that's exactly what's happened to ERISA--with thousands of lawyers and others trying to interpret (and skirt) the mountains of regulations that ERISA has grown into. Google ERISA and you'll see--the law has created an entire industry which, en toto, does so much less for humanity with all those resources than could otherwise be done. Multiply ERISA by the thousands of other local, state, and federal regulations, and you see how America's recovery is strangled by government. My wife who is Napa County Supt. Of Schools says, she spends a fortune trying to comply with an endless array of often contradictory regulations, which en toto provide dubious benefit, certainly less benefit than if given directly to schools to spend as it saw fit. Every word uttered by every teacher is constrained by district, county, SELPA (don't ask), state, and federal laws and regulations. Be careful when you ask for reregulation--what you get in 2009 will increase manyfold in years to come, and will never get undone.

DB: I fully agree that regulating is hard to get right and hard to undo. But what’s the option? It’s hard to regulate derivatives but we have to do it. It’s hard to regulate pensions but we have to do it.

MN: The problem is that liberals refuse to accept the reality that no matter how well planned a regulation, the aforementioned metastasis is a near inevitability. And having a negotiation among left, right, and libertarian is unlikely to work because the compromise would likely end up being the worst of all worlds/lowest common denominator or because one group is so emotion-driven in their antipathy to the other side that they (or some of their loud, particularly irrational stakeholders) will refuse to act rationally. (And you must admit that anti-corporate socialists, environmentalists and advocates for minorities are among the worst of these.)

DB: We can’t afford not to do the best we can to write good regulations where regulations are needed. As you stated yesterday, when you said you were not a doctrinaire libertarian, the financial institutions need to be regulated as regards lending standards and credit default swaps. It won’t be easy and people will try to embed all the loopholes they can – but what’s the alternative?

MN: As I've said in a previous exchange, I'm okay with modernizing the regulations to include CMOs, CDOs, swaps, etc. That's a long way from the level of regulation that Obama, his minions, the liberal Congress, and liberal media have in mind. My view is that human nature is such that, lamentably, a certain amount of cheating will go on and, as with all interventions, there's a sweet spot: the amount of regulation that creates the most good with the least burden. Government starts creating regulations prudently but over their lifespan they metastasize so that the liabilities soon greatly outweigh the benefits. Another liability of regulation--you're on the losing end of a competition between a slow-moving/small group of regulators and the world, with an endless amount of ingenuity to beat the system. So, the best answer: a small number of simple, air-tight rules that are minimally constraining and with minimal reporting. Remember, the perfect is the enemy of the good.

DB: I agree with you on this.

1 comment:

Anonymous said...

Aren't there any people who oversee regulation and regularly check what is still effective or necessary and what has outlived its purpose? A naive question, I know, but billions of miles of red tape would be eliminated if that job was done effectively.

How cute of me to think that our federal government could do something as simple as checking itself.

For both of these debates, it looks like you both were able to keep your emotions in check, which I found impressive. When it comes to discussing politics or religion, that is almost impossible to do. It's as if you're even questioning a person's political stance, you're personally attacking them.

Interesting stuff.


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