Regulations

I Wasn’t Talking to You

The dark lord says:

The typical arguments are made by the right too. If the economy is going good “see, the deregulation has brought about unprecedented wealth. How can you propose more regulation?”

When the economy goes bad, we get the answer “see, the crisis is brought about due to regulation in the housing mortgage market. How can you propose more regulation?”

Yes, the libertarian right makes this argument, but there is a consistency in it. We believe that most regulations do harm, and that a lightly regulated economy works best.

If the socialist left made the counter-argument, that too would be internally consistent. If you really wanted to regulate the economy all the way to the Soviet Union, you could justifiably claim that both the US and India are variants of the same system. But in my post, I wasn’t arguing with the socialist left – I don’t need to, as history has already answered them.

My argument is with those who say that “we need a free market with some regulations, but that doesn’t mean that we should be socialist”. If you hold that belief, I would expect you to believe that there is some point at which additional regulations do more harm than good, so you’d support some regulations and oppose others. But what I notice is that for supporters of regulation, the right amount of regulation is always “A little more than we have now”.

We Always Need More Regulations

As Ajay Shah points out, we don’t just regulate our financial system, we micro-manage it. When things are going well in the US, and we make the case for deregulation, we get the answer: “See, even in the US, we don’t have a completely free market system. Even they have regulations. How can you propose that we junk ours?”

When things go wrong in the US, we get the answer: “See what happened to the US because they followed a free market system? How can you propose that we junk our regulations? We need more.”

This bias ensures that we will always follow suit when the US moves left, never when it moves to the right.

The Dangers of Labeling

I was going to write a post on this today, but coincidentally, Wired’s piece on 100 Things Your Kids May Never Know About has “Toys actually being suitable for the under-3s” as one of those things.   The United States of America faces a dystopian future where no child under 3 will have a toy he or she can play with.

I got a taste of this future back in November, at a Toys R Us outlet in New York. I was searching for something to buy for my then 2 month old son to show people what we got from phoren. Sadly, the only thing that was available was some cuddly soft toy that hummed tunes when its tummy was pressed. Indian children at that age have rattles and other toys to play with, but not their American counterparts.

I am back in India, and my son is now a few months older. I have managed to find some toys for him, but attempts to buy high-end ones usually fail. Companies like Fisher-Price attempt to follow the same standard for labeling toys as they do in the US, and sadly this means that any interesting toy is labeled “Not suitable for children under 3”, because apparently those toys invariably have small parts that cause a choking hazard.

We were planning to buy an inflatable rubber tub to pour water into and let him splash about. Just as I took out my credit card, we saw the choking hazard warning. It took some detective work, but we finally figured out that the small part in question was the lid covering the inlet for air.  The lid was attached to the tub, and it was exceedingly unlikely that a child would swallow it. In any case, responsible parents who will let 6 month old kids play in water will watch over them all the time. The warning label was obviously intended, not to protect children from choking, but manufacturers from lawsuits.

The danger from this defensive labeling is that either children will be left with no toys to play with, or parents, inundated with too many pointless warnings will start ignoring them, and some will also ignore real hazards.

The Politics of Reservations

In the  July 2009 Pragati, you can find my article on the politics of reservations.
Whenever supporters of reservations have to make the case for extending reservations for another 10 years, they are faced with a dilemma. If they admit that reservations have achieved their goal, then why do they want them extended? And if they admit that they have not achieved their goal, then why are they persisting with a failed policy for over 60 years? The generally accepted solution to this is to claim that reservations have had some effect, and the policy would be even more effective if it had been properly implemented, and for that they need to extend reservations in time and scope.  This is what I meant when I compared reservations to Yossarian’s liver in Catch-22 – if doctors can confirm that it is a disease, they would have to treat it. If they pronounce him cured, they would have to discharge him. Because the problem was invariably in between, Yossarian could stay indefinitely in hospital.

Here, I would like to respond to some points that were made by Anubhav Agarwal, who made these points as twitter replies. The points here have been edited for readability:
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Private Schools as Madrassas

Via Acorn,  we learn that private schools in Uttar Pradesh have been rushing to convert themselves into madrassas to take advantage of Manmohan Singh’s subsidy intended to encourage madrassas to provide modern education.

We should have strong regulations to ensure that private schools do not incorrectly classify themselves as madrassas. If they want the subsidy, they should be forced to provide Islamic education.

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.

When Free Markets Are a Bad Thing

A year back, we were visiting my wife’s relatives. The head of the family, my wife’s uncle, used to be in the police force before he drank himself to death. 

As is the norm in these cases, his eldest son was given a job in the police department.  Of course, he had to pay a bribe for the job.  He got a discount because of his late father, but he wasn’t exempted. If the son had been a graduate, the amount would have been lower, but he would still have had to pay. 

And oh – he did not get an actual policing job. That would have cost him much more. He was given a clerical job in the department, dealing with personnel matters.  That cost lower. 

“I don’t suppose you have any opportunities to make extra money in this section?” I asked him.

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