More, Stronger, Effective

VK wants to know if I meant more, stronger or more effective regulations in the previous post.

If it is more,  well how much more? Which country has escaped a crisis by having more regulations? Of course, India can avoid the crisis that comes about when growth rate drops from 9% to 7%, if we are willing to accept a steady growth rate of 3%. The point is to manage crises without accepting stagnation in return. Now, I don’t accept that the US is a libertarian Mecca, but obviously, many of you think that it is close to one. But it also so happens that the US is one of the most prosperous countries in the world. It has experienced fewer and shallower crises than the rest, and has recovered from them faster than others. If you think that having few regulations is bad, then how do you account for this result? If you think that having more regulations is the answer, then how do you account for every other country in the world?

If it is stronger, well “stronger” presumably means having stricter punishments for the same crime. But you can’t punish an action if it is not a crime in the first place.  It was not a crime for companies to borrow from abroad, so unless you make it illegal, you can’t increase the punishment. 

If it is effective, is it something like what libertarians and communists supposedly say when their preferred systems supposedly fail? Just as a libertarian system has not yet failed because a truly libertarian system has not yet been tried, regulations have not yet failed because truly effective regulations have not yet been tried. What is an effective regulation? Whatever, in retrospect, could have prevented the last crisis.  If a regulation fails to prevent a crisis, then, by definition,  it is not effective, which means that effective regulations have not yet been tried. 

The challenge is to be able to predict in advance which regulations will be effective and to put in place a political system that has the will to impose only those regulations and not the other. So far, no one has figured this out.

6 thoughts on “More, Stronger, Effective

  1. But it also so happens that the US is one of the most prosperous countries in the world. It has experienced fewer and shallower crises than the rest, and has recovered from them faster than others. If you think that having few regulations is bad, then how do you account for this result?

    Obviously the US differs in a number of other ways from other countries in the world. The quality of government in the US is a lot better than in much of the rest of the world; on average, they have one of the best workforces in the world etc. I am not denying that the free market aspect of the US has nothing to with its prosperity – that would be a foolish thing to say, but we need to control for a lot of other variables before we can draw a causal arrow from ‘lack of regulations’ to ‘prosperity’.

    The state of Kansas in the US has been rated as the most business friendly in the whole of the US, and yet it is at best a mediocre state in the US in terms of wealth or advancement.

    I agree with the spirit of your post, but I don’t think this is going to convince anyone who hasn’t already come to the same conclusion from different sources of evidence.

  2. If your point was that less regulations help in better recovery from crises, then my Kansas example was irrelevant – my bad.

    Your point may be true – regulators, of course, often are shutting the barn door after the horse has bolted. But I am not completely convinced that lesser regulations won’t lead to a bigger blowup of crises. Reading Taleb on black swan blowups has made me suspect that may be the real cause here is overconfidence in our models.

  3. No I am not asserting any causal relation myself. I am challenging those who assert a causal relation between extreme libertarianism and… I don’t know what.. poverty? to explain the United States of America. If, IN THEIR VIEW, the US represents everything that is wrong with libertarianism, then how is it that everything that is wrong with libertarianism looks like such a nice place?

  4. Your model of your opponents seems flawed. There is no logical inconsistency as such in the world view of Naomi Klein and Michael Moore – they see libertarianism as the philosophy of profiteers who don’t care about justice and human rights. And they feel the US illustrates this – stagnating real wages for the middle class while the upper class gets richer and richer, Bush and his cronies waging wars so as to line their own pockets while bankrupting the rest of the nation, globalization as an ideology that aids the big corporations which don’t care about the job losses for honest workers, government and big pharma and insurance companies colluding to rob the common guy of affordable health care, and so on. *This* is the causal relation they assert – and they don’t see the US a nice place, by any means.

    ( Note: I do *not* agree with the views I described above.)

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