Regulation Ratchets
By Robin Hanson · May 19, 2010 8:45 pm
Yesterday I heard politicians talking sagely about how the gulf oil disaster shows we need stronger drilling regulations. I’ve recently heard similar musings about how the financial crisis shows we need stronger financial regulations. Makes sense, right? But stop for a moment and ask: Aren’t there lots of areas where we haven’t seen a big disaster in a long time? (E.g., when was the last big hairdressing disaster?) 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?
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 you won’t decrease regulation without a screwup but will increase it with a screwup, then you have a regulation ratchet: it only moves one way. So if you don’t think a long period without a big disaster calls for weaker regulations, but you do think a particular big disaster calls for stronger regulation, well then you might as well just strengthen regulations lots more right now, even without a disaster. Because that is where your regulation ratchet is heading.
What if you can’t imagine ever wanting to weaken a regulation, just because it was strong and you’d gone a long time without a big disaster? Well then you apparently want the maximum possible regulation, which is probably to just basically outlaw that activity. And if that doesn’t seem like the right level of regulation to you, well then maybe you should reconsider your ratchety regulation intuitions.
Added 8p: I’m not saying there there aren’t many other reasons/factors influencing regulatory changes, and I’m not saying regulation never gets weaker. I’m saying that this particular factor, the existence or not of a recent disaster, is often a ratchet factor, since many folks seem unwilling to consider reducing regulation because of a lack of recent disasters, yet are willing to increase it because of a recent disaster. This is a clear bias, though it might of course be countered by other opposite biases.
overcomingbias.com
Spending Ratchets
Posted by Brian Moore under budget
[2] Comments
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 you won’t decrease regulation without a screwup but will increase it with a screwup, then you have a regulation ratchet: it only moves one way. So if you don’t think a long period without a big disaster calls for weaker regulations, but you do think a particular big disaster calls for stronger regulation, well then you might as well just strengthen regulations lots more right now, even without a disaster. Because that is where your regulation ratchet is heading.
… but I didn’t think of another application until today, when I read this: (via Marginal Revolution)
People, we have seen a literal mountain of government spending around the globe. And what do we have to show for it? An avalanche of unsustainable deficits and sovereign debt levels.
Government spending seems to be a similar kind of one-way ratchet: we spend more when tax revenues are high because we can, and then when we have a recession, we have to spend more to help people through these troubled times and because otherwise collapsing spending will deepen the recession (or so I’m told). So we can assemble a similar paragraph for this example as well:
So if you don’t think a long period without a big [recession] calls for [less spending], but you do think a particularly big [recession] calls for [more spending], well then you might as well just [spend] lots more right now, even without a [recession].
The one key difference is that unlike regulation, spending while you don’t have recession actually makes it harder to spend during the recession (when everyone thinks we need it most!) because you could’ve been saving that money for the rainy day. Yes, I know it all works differently for sovereign nations, but the cause and effect are basically the same.
So, I am willing to accept that we may need spending right now in order to mitigate the recession — I don’t have the expertise to say. But what I do know is that if this is true, it retroactively proves right those who cautioned against increased spending during the non-recession mid-1990’s and 2000’s. It also means that if governments don’t have the money to spend (or, more accurately, can’t spend it without endangering their credit) on anti-recession measures today, the blame for that falls squarely on those who vastly increased spending during the good times. It might also imply that after this recession, when things look rosy again, perhaps people should heed those calls for spending restraint. If you think it likely that future politicians will, then I have some low-low-risk home loans to sell you.
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