Home > data science, finance > Regulation is not a dirty word

Regulation is not a dirty word

June 5, 2012

Regulation has gotten a bad rap recently. It’s a combination of it being associated to finance, or big business, and it being complicated, and involving lobbyists and lawyers – it’s sleazy and collusive by proxy, and there are specific regulators that haven’t exactly been helping the cause. Most importantly, though, the concept of regulation has been slapped with a label of “bad for business = bad for the struggling economy”.

But I’d like to argue that regulation is not a dirty word – it’s vital to a functioning economy and culture.

And the truth is, we are lacking strong and enforced regulation on businesses in this country. Sometimes we don’t have the regulation, but sometimes we do and we don’t enforce it. I want to give three examples from yesterday’s news on what we’re doing wrong.

First, consider this article about data and privacy in the internet age. It starts out by scaring you to death about how all of your information, even your DNA code, is on the web, freely accessible to predatory data gatherers. All true. And then at the end it’s got this line:

“Regulation is coming,” she says. “You may not like it, you may close your eyes and hold your nose, but it is coming.”

What? How is regulation the problem here? The problem is that there’s no regulation, it’s the wild west, and a given individual has virtually no chance against enormous corporate data collectors with their very own quant teams figuring out your next move. This is a perfect moment for concerned citizens to get into the debate about who owns their data (my proposed answer: the individual owns their own data, not the corporation that has ferreted it out of an online persona) and how that data can be used (my proposed answer: never, without my explicit permission).

Next, look at this article where Bank of America knew about the massive losses on Merrill after agreeing to acquire them in September 2008 but its CEO Ken Lewis lied to shareholders to get them to vote for the acquisition in December 2008. The fact that Lewis lied about Merrill’s expected losses is not up for debate. From the article:

… Mr. Singer declined to comment on the filing. But the document submitted to the court said that Mr. Lewis’s “sworn admissions leave no genuine dispute that his statement at the December 5 shareholder meeting reiterating the bank’s prior accretion and dilution calculations was materially false when made.”

What I want to draw your attention to is the following line from the article (emphasis mine):

…the former chief executive did not disclose the losses because he had been advised by the bank’s law firm, Wachtell, Lipton, Rosen & Katz, and by other bank executives that it was not necessary.

Just to be clear, Lewis didn’t want to tell bad news to shareholders about the acquisition, because then he’d lost his shiny new investment bank, and he checked with his lawyers and they decided he didn’t need to admit the truth. That is a pure case of unenforced regulation. It is actually illegal to do this, but the lawyers were betting they could get away with it anyway.

Finally, consider this video describing what was happening inside MF Global in the days leading up to its collapse. Namely, the borrowing of customer money is hard to track because they did it all by hand. No, I’m sorry. Nobody does stuff with money without using a computer anymore. The only reason to do this by hand is to avoid leaving a paper trail because you know you’re about to do something illegal. I’m no accounting regulation expert but I’m sure this is illegal. Another case of unenforced regulation, or at worst, regulation that should exist.

Why do people think regulation is bad again? Does it really stifle business? Is it bad for the economy? In the above cases, consider this. The fact that we don’t have clear rules will cause plenty of people to avoid using all sorts of social media at all for fear of their data being manipulated. We have plenty of people avoiding investing in banks because they don’t trust the statements of bank CEO’s. And we have people avoiding becoming customers of futures exchanges for fear their money will be stolen. These facts are definitely bad for the economy.

The truth is, business thrives in environments of clear rules and good enforcement. That means strong, relevant, and enforced regulation.

Categories: data science, finance
  1. rob
    June 5, 2012 at 10:51 am | #1

    Devil’s Advocate says regulation encourages market agents to lie illegally, which encourages a culture of illegality. It also encourages risky gambits to skirt the regulation. So a law against murder would encourage secret, lying, scoff-law murderers. Do you want your murderer to be a cheat too? Then, as Richard Epstein points out, regulatory rules are difficult to read. What a drain! Who bothers? What’s the use? And all that expensive government enforcement restricts only the weaker murderers, which disproportionately harms the poor. Where murder is illegal, non-murderers with means can obtain legal protection from murder — more disproportionate harm and government collusion — and taxpayers have to pay for police and judges! What an unnecessary mess. However, I disagree with Epstein who thinks regulation throttles innovation. Regulation creates a robust market for the innovative minds of those who otherwise would have nothing to contribute culturally. http://www.hoover.org/publications/defining-ideas/article/69086

  2. libertarian by default
    June 5, 2012 at 1:18 pm | #2

    To me, regulation refers to laws that are not based directly on (~universal) first-principles (don’t steal, don’t lie, don’t murder, etc.) but instead are based on a complicated model of the world in order to change network effects and various emergent properties (free-riders, tradgedy of commons, etc) or simply to benefit one group at the expense of others (e.g. state licensing that creates barriers to entry) by deceiving the “others”.

    So on the three examples above, which I’ll simplify as “privacy”, “lying”, “stealing” I don’t think the latter two are good examples for arguing “regulation not a dirty word”. There should be laws that make the latter two enforcably wrong, but to me they’re very different types of laws than those that might govern the privacy issue because they’re basically deriveable from universal principles.

    As a libertarian considering privacy the notion that we “need regulation” is a bit absurd in the sense that we’re considering empowering one agent (the government) with nearly infinite ability to abuse privacy for its own benefit, in order to legislate ways that other vastly smaller entities can or can’t use information that we mostly voluntarily give them. I’ll fully admit that these “smaller entities” are still so much larger than an individual, that there are sketchy ways for them to exploit people (and I believe this strongly enough to affect what I do online, how I use credit cards, my ~anonymous posting here, etc). However I’m skeptical that adding a few hundred more pages to existing laws under the auspices of “privacy regulation” is really beneficial.

    I can think of many market solutions to privacy: consider “what happens … stays in Vegas” and the fact that some grocery stores now advertise discounts without use of special cards. In both cases businesses directly advertise (relative) privacy as a product.

    An example where I think (most) libertarian’s would admit “regulation” is justified, is safety testing of products/services that have the ability to injure or kill people many people, including some who aren’t paying customers (many environmental concerns could be included here). But privacy is not an example I would ever support regulating, short of extending “stealing” (e.g. not ok to grab my DNA from a flake of skin that falls off by body) to account for changes in technology which I would claim is not regulation at all but just clarification of “don’t steal”.

    • ds
      June 6, 2012 at 1:21 pm | #3

      The problem I see here is that the assumption that regulation is what empowers government. You admit that in a world without regulation, certain entities, albeit smaller, will have a degree of unfair and unchecked power over others. But these entities would have no real power over others if they were not backed by the unlimited force and authority of government in the first place. So why should we bestow total authority upon our government to protect a system which allows for inequality of resources and power amongst its citizens but not allow for a system of regulation which can mitigate the problems associated with such inequality?

      It is not absurd to empower the government, “with nearly infinite ability to abuse privacy”, to legislate ways which businesses can use information from their consumers because those two things are unrelated. Because it has the guns, government *already* has the infinite ability to abuse privacy for its own benefit — it doesn’t need privacy regulation to collect whatever information about us it wants. So, again, why would be bestow this unlimited power upon government and use it to protect a system of commerce which allows companies to collect information on us freely and without retribution, but *not* allow the government to regulate such activity in the public interest?

  3. June 5, 2012 at 11:27 pm | #4

    i hear what you are saying. I agree with the sentiments. I myself struggle with what ideologies i truly believe in.

    I so much want to live in a frictionless free market culture where good ideas can be pursued without detached, slow moving, difficult to confront bureaucracies dictating from a far what can and can’t be done.

    I think that is why i gravitated to Ron Paul’s ideas about simplification of regulation. That is prosecute fraud vigorously and limit the FED’s ability to increase the money supply to deter mal investment.

    On the other side my struggle – i also get that all arenas have regulation – I mean in soccer you can’t just use your hands to throw it in the goal. – But – then again you if that is what you want to do – you can just go play football. — Ugg! I am still struggling:)

    Well if anything I want to live in a world that looks to simplify this arena. In the words of Steve Jobs

    “Simple can be harder than complex: You have to work hard to get your thinking clean to make it simple. But it’s worth it in the end because once you get there, you can move mountains.”

    cheers
    Jamie

    • lew
      June 9, 2012 at 2:17 am | #5

      I interpret ‘ideologies’ to be ‘words have priority over reality’.

      The first requirement of morality is to get the facts and logic and context correct. Ideology prevents that.

  4. Jason Starr
    June 6, 2012 at 12:03 am | #6

    Out of curiousity, who are you people?

  5. rob
    June 6, 2012 at 1:08 pm | #7

    Is the notion of freedom-from-regulation not a wishful myth? If the Fed doesn’t modulate money policy, foreign nations and international private mega-banks will and not necessarily for our national benefit. Our government is dysfunctional, but the Fed is actually one of the least dysfunctional institutions created by it. And dysfunctional as government is, we easily forget the nearly unregulated 19th century when the abuse of labor was the rule. No one wants to remember the life of an immigrant female in New York, 1850 — it’s too dark; doesn’t make good movies. The notion of a perfect free market is itself a fiction, and Adam Smith observed right at the start that it entailed profound inequities (if only the venerators of Adam Smith would actually read him), and the worst of industrialization’s misery was yet to come when he wrote.

    We complain about the current recession and blame it on the Fed, but were it not for the welfare safety net, people would be truly desperate, the economy would be significantly worse, we’d probably be near revolution, lynching bankers in the streets instead of Occupiers leading drum circles and Tea Partiers holding portraits sporting Hitler mustaches on them.

    Regulations always have a downside, but every policy, including the null policy, has multiple, possibly infinite, downsides. At some point we have to weigh the balance and, renouncing mere wishful dreams, maturely accept the imperfect better.

    I’d like to see a thorough sociological study of politicians and CEO’s and, say, economists and journalists just to see if we really have the wrong people in places of power. Eventually the field will produce comprehensive data, and the world may be better for it. Economics students have been studied:
    http://www.gnu.org/philosophy/economics_frank/
    or for a quick review
    http://www.psychologytoday.com/blog/the-decision-lab/201104/why-does-studying-economics-hurt-ethical-inclinations
    If we could identify the right leaders, maybe there’d be less distrust of government. There’s my recommendation for regulation of DNA info.

    • lew
      June 6, 2012 at 4:25 pm | #8

      “The Fed is one of the least dysfunctional”.

      Lets see.

      Crash of 1929 and the Great Depression which produced WWII which produce WWII.
      98% loss of the dollar’s value from the time of founding the Fed.
      Innumerable boom-and-recession cycles, which continue even tho we have computer systems to control the inventory buildup cycle, which was said to be the cause of boom-and-recession cycles.
      The last 3 bubble-and-crash episodes each have a larger amplitude than the last, meaning the Fed’s responses are out-of-phase.
      And the entire world is entering another crash-and-Depression.

      Maybe the Fed is among the least dysfunctional segments of government, but in absolute terms it is nothing to brag about.

      • lew
        June 7, 2012 at 3:11 am | #9

        Great Depression produced WWII which produced Cold War.
        General Progressive era politics and the income tax produced the Fed and WWI.

        Sorry for the confused scribble.

      • rob
        June 7, 2012 at 9:47 am | #10

        The lesson is, lew, it’s possible to be perfectly functional and still utterly wrong.

        There has long been consensus among economists that the weakening of the dollar improves our export trade, and that’s the purpose. The problem is our lack of competitiveness and our comparative wage, not the Fed. Maybe there are some protectionists who disagree, or maybe bankrupting our manufacturing sector would improve it, or we should live at a lower standard. But then the complaints would be louder still.

        Volcker effectively ended the inflation threat in the 80′s, making tough decisions. The Fed gets some credit for the Great Moderation of the 80′s and 90′s in which the boom-bust cycle was so mollified as to have been described as resolved. Greenspan was a national hero while times were good — easy to complain now.

        Right or wrong, the Fed was largely independent, if sometimes ideological. They may have been wrong even when they were most effective, but their mistakes were not the result of corruption or external intervention, or chronic, debilitating and terminal internal conflict, which is what I take to be the denotation of “dysfunction” and an accurate characterization of Congress. In the lead up to the Great Depression and the current Great Recession too, it was not dysfunction but something like irrational exuberance.

        So I agree that the Fed is often out of phase. If there is a dysfunction in the Fed, it might be an inclination to be Pollyannish in good times and scared and irresolute in bad.

        • lew
          June 8, 2012 at 5:39 am | #11

          Of course, the dysfunctional responses might be because they are following ideology, that economics cannot produce the cause-and-effect links needed for a control system, that no control system is possible for complex systems such as the economy, that Keynesian economics is popular because the mechanism is easy to grasp and because the Fed sponsors almost all of the Monetary Theory research and because almost all academic economists are Progressives of one kind or another, …

          We already know that economists can predict nearly nothing, because if they could, we would all be economists to make the big bucks.

          The economy is a system, not a mechanism.

          Economics produces the same kind of data as history, and one can get correlations from that data, but not causation.

          The Fed cannot possibly know what it is doing, and there is little evidence that it does.

          How do you guide a system to a desired state when you cannot predict any future state?

          I think the economics profession has near-zero critical thinkers because it is not in their individual interest to think critically.

          • rob
            June 8, 2012 at 12:19 pm | #12

            Fed ideologies seem to be widely divergent. Greenspan was an Ayn Rand libertarian, Bernanke a Friedman Republican, Volcker a non-ideological Democrat. So if they share anything as economists, it can’t be ideology. (One reasonable non-ideological conclusion would be: what such ideologically diverse economists share can only be the well-established knowledge consensus and expertise.)

            If cause cannot be identified, then how blame the Fed for WWII? The structure of your argument seems to be, the Fed is bad because of what it effects, and it can’t effect anything. That’s to say, disparage the Fed regardless of evidence. That’s clearly not an empirical position, but maybe an ideological one. If, like Hayek, we believe we lack relevant certainty, then how do we know that WWII wouldn’t have been much, much worse without the Fed? The argument, like solipsism, is a non-starter.

            Every empirical science must face uncertainty. That doesn’t entail that science can’t progress. Technology is proof. You don’t know how your computer will run down over time, but you have every good reason to rely on it for a good while and get a hell of a lot of work done in the meantime before it all fails.

            –”We already know that economists can predict nearly nothing, because if they could, we would all be economists to make the big bucks.”–
            The major premise implication is false and also the reverse is actually true: you don’t even have to be an economist to play the market successfully, and most artists, scientists and scholars wouldn’t bother to play even if they could. I think if you want to make a bundle, you can.

            • lew
              June 9, 2012 at 1:31 am | #13

              Theoretically, Obama’s ideology isn’t Shrub’s ideology, but their behavior makes it the Bush-Obama administration. The office determines the advice which determines the policy.

              It is perfectly reasonable to argue with correlational data, that is what historians do because it is the only data they have, just like economists. Read David Hackett Fischer’s “Historian’s Fallacies”, must have been his Ph.D. thesis. A fine analysis of what kind of things can be sort-of-known if the researcher is very careful with evidence and logic.

              So I argue as a historian using historian’s data. One can never be certain, but improving the probability of making a correct decision is useful. Thus, many people besides myself have concluded that WWI would not have ended as it did if the Progressives hadn’t won power in the US, with the income tax, the Fed and Wilson. Had the French and English not been able to force the Versailles Treat and had not the Fed caused the Greater Depression, Hitler and WWII would not have happened.

              That is entirely different than the quality of information needed to build a control system, which is what the Fed purports to be. The Fed actively tries to control. It has bad effects precisely because it does not have any of the prerequisites of a control system: it doesn’t have the sensor net necessary to determine the current state of the economy in sufficient detail, given non-linear feedback in the equations (logistics equation is everywhere in the economy) and the resultant mathematical chaos and therefore extreme sensitivity to initial conditions. It doesn’t have the intellectual grasp of the economy necessary to write the equations necessary to determine the next state of the economy, given this state. It doesn’t have effectors necessary to move the next state to a desired state.

              Waving your hands and speaking politically-persuasively is not a control system.

              You state that my major premise is false, but provide no evidence. So economists can predict important future events? As a profession, they are much worse than the weatherman. If you have contrary evidence, I am sure we would all like to hear it.

              • June 9, 2012 at 2:19 pm | #14

                But lew, I already gave the examples. Repeating them: Volcker effectively curbed the 80′s inflation; the Fed played a role in “The Great Moderation” including the Clinton and Bush booms, both of which were supported and sustained by the Fed intentionally, functionally, effectively and successfully.

                Unintentionally and self-deludedly it played a role in the Great Recession. The Fed can be Pollyannish in good times, chicken in bad (as in the Great Depression).

                Friedman should get credit for giving the field a sound positivist-scientific ground in “Methodology of Positive Economics.” With the context of that article in mind, read through Friedman & Schulz’ “The Great Contraction” and Bernanke’s Afterword (Epilogue?) in the new edition. In effect, Friedman sought and demonstrated the equivalent of counterfactual support in the historic record ranging over several instances both domestic and foreign: x((Ax->Bx) & (~Ax->~Bx)): AB. That’s as close to cause as any science can reach.

                (Btw, your major premise was: If economists can predict, then everyone would study economics to become rich. Your minor premise was: People are not rushing into economics; the conclusion: therefore economists can’t predict. But the major is false: there are plenty of people like me who are not at all interested in spending time just for money, and are even repulsed by pure money-making work. And the reverse is true: many do make a bundle on the market through their study of it. In fact, the market would collapse if it weren’t predictive in the long run. Every idiot investor predicts this: the market goes up in the long run. That was even true in 1929.)

                But I’m interested in the history claim. In one sense, because Benedict Arnold didn’t twist his ankle at Saratoga and did win that battle, Hitler grew a mustache, changing all our lives indelibly. But that doesn’t help us understand cause or policy, and implies that regardless how stupid the Fed, it doesn’t matter, Fed or no Fed. See what I’m wondering about? I agree that QE2 encouraged the circumstances that made the Arab Spring possible. Does that imply that the Fed can have no role, because there are always unforeseen consequences? Look again at the examples at the top. There’s always uncertainty, but it is possible to open the door to uncertainty and ensure multiple black swans, and necessarily therefore it’s also possible to narrow the aperture, reducing the flow of uncertainty.

                • lew
                  June 9, 2012 at 2:54 pm | #15

                  So the Fed is to be judged an effective regulator because Volker caused it to stop doing what was causing the inflation?

                  And the Clinton and Bush booms were another positive thing that the Fed produced, even tho that was the time that national, state and local debt was rising fast and the Fed was funding the dot.com-bubble and real-estate bubble? Which produced the bust we are now in?

                  Even if I accept that these are positive examples, we need to consider the net effects of the Fed and the ROI to we 99.9% (it is clear the Fed is very good to the owners of banks). Given the possibility, however small, that the Fed was a cause of WWII, don’t you think we should be applying the Precautionary Principle for all complex systems, not just the environment?

                  No that is not as close to cause-and-effect as any science can achieve, it is still based on past events in a very complex environments, not controlled experiments. There were tons of things that were changing in the outside world that affect the economy, not just Friedman’s actions at the Fed. You can cite any number of examples of decreasing/increasing M3 and having decreasing/increasing GDP growth, yet never KNOW that there was a cause-and-effect relationship because it is still possible that a new variable produced the result or because a new combination of variables produced the result. This does not even rise to the historian’s quality of cause-and-effect, because the historian can cite personal letters from X Y discussing the issue in question, X urging Y to take some action.

                  And it does make a difference whether the Fed exists for the same reason that it is much easier to screw up a rainforest ( any complex system ) than it is to improve it. Zero interest rates == stop the trees from growing. Minimum wage == cut all trees less than $7.50 / hour. (Yes the Fed has nothing to do with min wage, but it certainly tries to improve the economy, for which it has no control system remotely capable.)

                  So yes, your logic about economists predicting was correct.

                  But your support of the FACT of economists predicting, at least to the level of weathermen, is not in evidence. Economists can’t possibly predict for the same reasons historians can’t predict : they do not have the quality of data to do more than state that if the system continues to behave as it has done before, and if there are no new variables that I have missed, it will probably do this.

                  Amazing how often that doesn’t work.

                  And if you can’t predict any future, it is logically not possible to navigate to a desired future.

            • lew
              June 9, 2012 at 11:12 am | #16

              http://www.huffingtonpost.com/2009/09/07/priceless-how-the-federal_n_278805.html?view=screen

              How the Fed has bought the economics profession.

              Evidence to support my statement above : “the economics profession has near-zero critical thinkers because it is not in their individual interest to think critically”.

              • June 9, 2012 at 5:19 pm | #17

                Thanks for the Huff Post piece. Re the rest: trees are not self-reflective agents that can speculate on their environments. Therefore there is no such hands-off “null” policy in human affairs. I started this way back with the myth of freedom. Governments were not given us by extraterrestrials, after all.

                Or consider imported blights and pests. We can’t turn back the clock just because we were at fault.

                Your argument is still incoherent. If you can identify what the Fed did to cause WWII, then either 1) recommend that the Fed not do that, or if it’s a Heraclitan stream in which the past cannot inform the future, then 2) it doesn’t matter what the Fed does, so there’s no reason to complain about it. There is a third, that the mere existence of the Fed (even if it did nothing) alters economic expectations. But you’d have to prove that those expectations are always and invariably negative, otherwise you land again back at (1) recommending policies that promote beneficial expectations. There was a flurry of interest in just that in a recent discussion last week:
                http://www.themoneyillusion.com/?p=14591

                http://esoltas.blogspot.com/2012/05/switzerland-take-12.html

                http://www.slate.com/blogs/moneybox/2012/06/01/swiss_lessons_for_the_rest_of_the_world.html

                Anyway, counterfactual support is the closest to cause available to science, as true of astrophysics as chemistry. Economists, even ordinary people, predict elements of the economy all the time — prices, most regularly. Not everything, of course. Chemists do not predict all the side effects of pharmaceuticals. And no science is complete, not even math.

                I feel about the Fed as I do about pharmaceuticals: I don’t trust them or their culture, but I recognize where they have succeeded and I expect them to fail in the future. But I would not prefer to roll back to the 19th century and, anyway, we can’t.

                In a word, I completely agree with you: if there were no Fed, we wouldn’t be able to blame WWII (or III and IV) for it.

                But we’re repeating ourselves, a sure sign that the discussion has exhausted its value. Thanks again for the Huff Post article. I hadn’t seen it. Most of the economists I read are among the independents who write on blogs away from Fed influence…I hope.

                • lew
                  June 11, 2012 at 11:03 am | #18

                  You are still not dealing with the problems of the quality of knowledge that economics produces, nor with the gulf between systems and mechanism., nor with computational complexity as a limit on future knowledge, …

                  Your epistemology doesn’t seem to illuminate those for your. The quality of data produced by a controlled experiment is completely different than that produced by history, economics, sociology, … There can be no cause-and-effect from the latter’s data. There can be no control system without cause-and-effect.

                  You still believe that the Fed produces desired effects, which you can’t prove. To the same extent and with the same argument that you support the existence of those effects, I can support the Fed causing WWII : not at all definitively, but a reasonable chain of correlational data supported by data from non-economic studies.

                  That is the best we can do in complex systems, and yes, that is what we all do all the time dealing with these complex systems as individuals. As for predictions : in chaotic systems, there are long periods when things change very slowly, and one can believe that a model predicts very well. A friend of mine was a weatherman for a while, said that he developed a reputation for being able to predict the temperature very precisely in Kansas at some times of the summer : high pressure areas make that easy as the temp doesn’t change day-to-day, so all he had to do was wait for that condition.

                  Getting your mind around a world where you really can’t see the future, instead of the Newtonian clockwork universe the entire culture assumes, is a non-trivial effort, and I am still not consistent.

                  Gleich’s “Chaos”.
                  Harel’s “Computers, Ltd.”
                  Gall’s “Systems Bible”
                  Wilson’s “Consilience”
                  Taleb’s “Fooled by Randomness” and “Black Swan”

                  I don’t know of a book that makes the point that all human beings are equally ignorant to 20 places to the right of the decimal point. A direct consequence of the huge amount of information humanity has accumulated and finite human minds. That guarantees that any two people will have knowledge and judgment that would benefit the other.

                  The internet provides a way for us all to combine our judgment, to understand things to a deeper level than any prior culture and thereby make better judgments.

                  IMHO, the system design of government is an area that could use a lot of improvement.

                  Thanks for conversation.

  6. lew
    June 6, 2012 at 1:25 pm | #19

    When you say ‘regulate’, you mean ‘write a control program’.

    It is possible to write control programs for mechanisms. It is not possible to write control programs for complex systems, much less evolving, open complex systems such as subsystems in the economy.

    For those systems, you can only have rules and laws that mandate openness and honesty, and leave it to judges and juries to apply the concepts in individual cases.

  7. SG
    June 8, 2012 at 4:24 pm | #20

    This isn’t complicated.

    Regulation is dirty because it’s not backed up by justice. The people applying the law are market players, not judges.

    • lew
      June 9, 2012 at 1:39 am | #21

      Regulation is dirty because it isn’t possible. As soon as you start making rules, the people trying to follow the rules find that the rules don’t cover the reality. Thus they re forced to be dishonest even when trying to do the right thing. Then most people follow the rules in a way that benefit them, and dishonesty sets in.

      I can’t fill out a company expense report following their stupid rules without being dishonest. I hate that. They want me to bill for travel time on an airplane, etc. Easy to justify going along with what everyone does, but the society slips into a very sub-optimal dynamic when people are not rigorously honest with each other and the systems and institutions we inhabit and implement.

    • lew
      June 10, 2012 at 2:58 pm | #22

      2 more small points :

      First, you snookered me on the logic there. Your interpretation depends on the plain meaning of the word ‘every person’, whereas it was clearly meant in the 2nd meaning of ‘a lot of people, most people, …’. Thus a debaters’s point, not a positive-sum argument to understand the real world that we inhabit.

      That is what I expect from ideologists, those who are intent on supporting the shared consensus. Whether it is L vs R, ‘life begins at conception’ vs ‘life doesn’t begin at conception’, evolution vs ‘the earth is 7000 years old’, gun control vs 2nd Amendment, the arguments tend to digression, debater’s points and the very particular. Ideologists cannot ever deal with the fundamental questions : ‘explain the dinosaur bones’, ‘can economists predict anything with the statistical certainty of the weatherman’, …

      The debate with any individual stops, but the argument for reality is not refuted.

      Second, the historian’s cause-and-effect in the case of letters may nevertheless be completely bogus : the decision-maker in question may have considered his correspondent a complete twit, and the arguments that actually convinced him came from a chance remark from the taxi-driver that took him to work that day.

      Without being able to run controlled experiments, no area of study can become a predictive science.

      Economics can never be a predictive science. Without the ability to predict, there is no possible control system.

      This is precisely the flaw that underlies all of Progressive thinking, and the reason that Progressive-designed systems and institutions are all failing. Sociology can never be a predictive science, nor political science, …

      The first step in fixing this is to stop the delusions.

      • June 10, 2012 at 5:40 pm | #23

        Sorry I snookered you.
        My high school alma mater is plastered all over the NYTimes Mag (and all over the news) because the school administration allowed a truly brilliant music teacher to sexually abuse students regularly over three decades.

        They fired less brilliant, expendable teachers for the same offenses and as a result protected their victims, affording them a measure of justice. Had the administration set clear standards and consequences, and applied them consistently, they would have saved more kids. P resulted in Q; ~P resulted in ~Q.

        http://www.nytimes.com/2012/06/10/magazine/the-horace-mann-schools-secret-history-of-sexual-abuse.html?pagewanted=1&_r=1

        But suppose the predators found other means around the regulations. Should the school administration therefore abandon regulation altogether and announce that sexual abuse is freely allowed?

        Well, maybe, maybe. Suppose high school course descriptions allow this: “Chorus, 1credit, 2 hours. Extra credit: for sexual favors, the instructor will take you on a European tour, wine and dine you with famous musicians where you can make possible future career connections. Grades and college recommendations are not included in perks, as they would compromise instructor reputation with college admissions officers.” Everything above board.

        Could work — IF he could cull the kind of tender offerings he seeks (and without the intervention of parents utterly dismayed at their own children’s venality). If not, will he continue to molest the unwilling?

        lew, I don’t think I’m ideological. Regarding the Fed I said, “I don’t trust them or their culture, but I recognize where they have succeeded and I expect them to fail in the future.”

        I just can’t believe that simply because every policy has a down side, we should all have no policies at all, since we’ve seen where no-policy was disastrous in the past. Instead we should continue the hard work of learning better how to deal. There are plenty of predictions in economics, and as the field progresses, there will be more. I’m not wedded to the Fed.

        I parodied the honesty issue in the first comment way up top, but it really is an issue. There are predators. Who cares if they are honest or dishonest? Only George Washington Plunkitt.

        If you believe that all predators are created by regulation, well, that’s an empirical hypothesis to be shown. Seems unlikely, but I’m sure you could get funding for it, and it would be worth while studying.

        • lew
          June 10, 2012 at 6:40 pm | #24

          Yes, get rid of the rules. Doesn’t mean you can’t use common sense. Any sexual activity with a person under the age of consent (and I don’t even like rules about age of consent) is, by definition, wrong. What do I need a rule to tell me that for?

          And, in the case of the age of consent, ask their parents. Yes, all above board.

          You are not dealing with the fundamentals. You claim that economists can predict. Evidence please.

          You must claim that economics is conveniently simple, has few enough dimensions, for economists to predict. And your profession is equally insistent that the situation is always too complex to be sure of a prediction, right now, at this instant.

          So my fundamentals are that rules are not useful because reality is always more complex than you can write rules for. Ultimately, you have to use common sense, and because the rules produce such stupid results, you may as well begin with and depend upon common sense.

          And that the economy is a complex system for which there is no possible control system. And that economists can’t predict much about that complex system. And that economics cannot produce and does not deal with the kind of information that can produce predictions. It is not a science equivalent to any experimental discipline.

          Thanks for the rational responses, btw. It is a pleasure to converse with a good mind, and I always learn from these interchanges.

          • June 11, 2012 at 6:32 pm | #25

            lew, of course without regulations you won’t abuse kids; but others will.

            Economics predicts, for example, prices relative to demand, supply and costs. Remember it’s a statistical science. As long as it’s significantly over 50%, it’s a useful science.

            Now, if only we could predict wars and their outcomes…

            • lew
              June 11, 2012 at 11:59 pm | #26

              Rob,

              You need to break with the reality you think you perceive.

              You cannot get away from the idea that the world needs rules and regulations. In fact, people still live civilized lives in tribal communities without any written rules, as we did for 10s of 1000s of years. Civilized people train their young from early times to be respectful of others, … because otherwise they aren’t civilized and the civilized wipe them out. Barbarians of the old sort do not rule this world.

              What is new is the modern Progressive state that tries to have rules for everything. Given the number of innocent people the USofA executes yearly, it seems to me there is room for improvement, that the entire base concepts might be wrong.

              And you still think that the cause-and-effect produced by economics is all that is needed, no different than that produced by controlled experiments. Otherwise, you can’t possibly hold the opinions you continue to espouse.

              Had a thought this AM about this. Minds and societies are continuously bootstrapping themselves to the next level, all the while so constrained by the concepts, ideas we currently have and which are preventing us from moving to the next level.

              The measure of a mind, it seems to me, must therefore be how fast it can adopt a new world-view, evaluate it, adopt the best parts of it, and continue to evolve.

  8. June 12, 2012 at 5:07 pm | #27

    In any good debate, the contestants come to understand their basic grounds. I think you’ve got it here, lew. You’re recommending a radical revision of values. That’s an important ideal. Bear in mind, Genghis Khan lived in a brutal primitive society — murdered his brother when he was still a kid — and conquered the civilized world.

    “all that is needed” Not all. Not nearly all.

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