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Politics : Just the Facts, Ma'am: A Compendium of Liberal Fiction -- Ignore unavailable to you. Want to Upgrade?

To: tejek who wrote (63624)	1/24/2008 2:49:33 PM
From: TimF	Respond to of 90947

There always has, and always will be incompetence and corruption. If you think that its limited to the private sector, limited to the US, or esp. prevalent now than your mistaken. And if your response is to create all sorts of new restrictions and government powers and interventions than you'll just increase it.

To: tejek who wrote (63624)	1/24/2008 7:40:06 PM
From: TimF	Read Replies (2) \| Respond to of 90947

Societe Generale today announced a $7.1 billion fraud by a rogue trader. Stand by for indignantly dull columns calling for tighter bank regulation. Regulation is supposed to stop banks from getting away with things, and if there's one thing banks aren't trying to get away with, it's having rogue traders commit $7.1 billion worth of the bank's capital in a futile attempt to corner the world's fur-bearing trout market. Meanwhile, what does this say about internal bank checks? That it's impossible to stop all fraud, and also, that people get lazy the longer they go without having a problem. Banks will now tighten up their trading standards for a while, which is no doubt a good thing, though as this Wall Street Journal history illustrates, eventually we'll have another one of these anyway. If you're wondering why this sort of bad news tends to cluster with other financial crises, it's because a rising tide is a good place to hide bodies. AOL, for example, played games with its expenses to turn a loss into a profit, but got away with it because eventually the profits materialized. MCI Worldcom wasn't so lucky. And big financial bets like this one are most likely to go bad when the financial markets are doing something thoroughly unexpected, like completely melting down. If you're looking for a sunny side to this, the best I can do is a small laugh: The trading loss wipes out almost two years of pretax profit at Societe Generale's investment-banking unit, run by Jean-Pierre Mustier. The company said it's suing the trader, who had a salary and bonus of less than 100,000 euros a year and worked at the bank since 2000. One presumes that Jerome Kerviel is not going to be working in the lucrative derivatives trading field any time soon. At the salaries he will be able to command, and allowing for reasonable living expenses and high French taxation, the SG stockholders should get their money back in a few hundred thousand years. meganmcardle.theatlantic.com

To: tejek who wrote (63624)	1/24/2008 8:53:16 PM
From: TimF	Respond to of 90947

The Law of Unintended Consequences Dubner and Levitt have an article in the NYTimes with three examples of the law of unintended consequences, the Americans with Disabilities Act made it more costly to hire people with disabilities and reduced their employment, ancient Jewish sabbatical law intended to help the poor has made them worse off, and the endangered species act has resulted in habitat destruction. In light of this Andrew Gelman asks a deep question, What kind of law is the "law of unintended consequences?" The law of unintended consequences is what happens when a simple system tries to regulate a complex system. The political system is simple, it operates with limited information (rational ignorance), short time horizons, low feedback, and poor and misaligned incentives. Society in contrast is a complex, evolving, high-feedback, incentive-driven system. When a simple system tries to regulate a complex system you often get unintended consequences. Unintended consequences are not restricted to government regulation of society but can also happen when government tries to regulate other complex systems such as the ecosystem (e.g. fire prevention policy that reduces forest diversity and increases mass fires, dam building that destroys wet lands and makes floods more likely etc.) Unintended consequences can even happen in the attempted regulation of complex physical systems (here is a classic example involving turbulence). The fact that unintended consequences of government regulation are usually (but not always or necessarily) negative is not an accident. A regulation requiring apartments to have air-conditioning, for example, pushes the rental contract against the landlord and in favor of the tenant but the landlord can easily push back by raising the rent and in so doing will create a situation where both the landlord and tenant are worse off. More generally, when regulation pushes against incentives, incentives tend to push back creating unintended consequences. Not all regulation pushes against incentives, some regulations try to change incentives but incentives are complex and constraints change so even incentive-driven regulations can have unintended consequences. Does the law of unintended consequences mean that the government should never try to regulate complex systems? No, of course not, but it does mean that regulators should be humble (no trying to remake man and society) and the hurdle for regulation should be high. Posted by Alex Tabarrok on January 24, 2008 at 07:47 AM marginalrevolution.com