tag:blogger.com,1999:blog-582368152716771238.post5413146463264385380..comments2024-03-18T07:59:05.430-05:00Comments on The Grumpy Economist: Romer on RegulationJohn H. Cochranehttp://www.blogger.com/profile/04842601651429471525noreply@blogger.comBlogger9125tag:blogger.com,1999:blog-582368152716771238.post-31281512811714768092018-12-16T16:40:51.133-06:002018-12-16T16:40:51.133-06:00I think you miss the distinction between rules-bas...I think you miss the distinction between rules-based and principles-based regulation. Once started down one of these two approaches, a regulator can find it very difficult to deviate. Great article.Anonymoushttps://www.blogger.com/profile/11821591298003294043noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-14582104677792827172012-01-25T16:21:54.395-06:002012-01-25T16:21:54.395-06:00regulating regulators
like we don't do this a...regulating regulators<br /><br />like we don't do this already<br /><br />Courts?<br /><br />Congress?<br /><br />Senate confirmation of officers?<br /><br />What is also fascinating is the assertion that we can regulate regulators through the political process but we cannot regulate directly (remember all that Cato crap about gov't is bad,etc.) and the new CATO crap that we cannot be politically trusted to do stimulus (Bullard 2012)<br /><br />It is also fascinating to see Cochrane ridicule rules and regs from OSHA that work. I have abundant first hand experience on that score. It is no surprise that a Catoist would hate OSHA, for the rules work.John L. Davidson, Esq., Saint Louis, Missourihttps://www.blogger.com/profile/06489381481280010964noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-84981975434126561022012-01-25T16:14:31.220-06:002012-01-25T16:14:31.220-06:00almost as if the restaurants serving me weren'...almost as if the restaurants serving me weren't interested in my return business. <br /><br />Why, in light of the overwhelming evidence that markets don't work, do we have people who assert that they do?<br /><br />Why is it impossible to get an admission that human "shortcomings" are so forceful that we need both markets and regulation?<br /><br />Could it be--applying Munger's phrase--incentive caused bias?<br /><br />And then we have a proposal for a suicide pact ("limiting the power of regulators ex-ante to bail out ex-post is important."). We are to deregulate financial institutions (like our problem how is that we over regulate them) and pledge that if they again use weapons of mass financial destruction we will stand aside while they blow up the whole world?John L. Davidson, Esq., Saint Louis, Missourihttps://www.blogger.com/profile/06489381481280010964noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-20012666815580930612012-01-25T06:12:15.760-06:002012-01-25T06:12:15.760-06:00Great post, thanks alot.
All that remains to be d...Great post, thanks alot.<br /><br />All that remains to be done then is that you write up your opposite view of the problem, then collaborate with Paul Romer on a unified model which shows (under appropriate conditions) regulating regulators is equivalent to regulating assets, or even precise what the tradeoffs are (presumably this will rely on Maskin and Myerson's work), and finally collaborate with someone else (me?) on which situations are nearly optimal, and then where exactly additional regulation can make a difference, and where on the contrary regulation cannot improve expected utility, because of feedback (and from there sensitivity to initial conditions/positive Liapunov exponent/chaos) bounding the regulators' control power.<br />(In the FAA example the feedback/tradeoff is between utility of flight and utility of safety/life, and the regulator is subtly involved because as a human s/he is computationally limited exactly for being a product of evolution, being part of society, that s/he tries to model/control/regulate.)<br /><br />Finally we collect our Nobel prize. How does that sound?<br /><br />More seriously, thank you again for the post. These are fascinating ideas, the most pressing questions in economics and politics I think, which I look forward to reading your contributions to, and to which I hope to contribute myself.<br /><br />(And I do think it probable Romer and you will earn a Nobel prize.)plmhttps://www.blogger.com/profile/18085024389858268943noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-75234852376784385912012-01-24T15:19:21.387-06:002012-01-24T15:19:21.387-06:00John, I'd have agreed strongly with you six mo...John, I'd have agreed strongly with you six months ago. But I've spent the last five in Mexico, where trivial regulation exists only as a means of collecting bribes. In that time, I've had more food poisoning than ever before---almost as if the restaurants serving me weren't interested in my return business. <br /><br />I now have a strong suspicion that many of these regulations are only required for the time necessary for the regulation to become a norm, and no more. Having worked in kitchens in Australia, I'm well aware that there it doesn't take regulation to encourage them to bleach every surface twice a day---it's just what's done. But in some industries, they may need a shove.javagehttps://www.blogger.com/profile/16427725069671113980noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-68041942240426870312012-01-24T01:29:31.452-06:002012-01-24T01:29:31.452-06:00Airlines maintain and install on their aircraft on...Airlines maintain and install on their aircraft only what is required by the CFR (Code of Federal Regulations).<br /><br />Airlines train and certify crew only to the standard required by the CFR.<br /><br />And no more.Donhttps://www.blogger.com/profile/15891001872060501193noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-41840007047291160482012-01-23T16:14:44.032-06:002012-01-23T16:14:44.032-06:00I know nothing about light air regulations, but I ...I know nothing about light air regulations, but I disagree with Romer for a different reason: there are too many differences between OSHA and FAA to attribute the difference to their meta-rules.<br /><br />I agree with Cochrane that simple rules are preferable to discretion, especially for regulatory institutions that have recently been especially vulnerable to industry capture. Unfortunately, it is very hard to regulate effectively without providing the regulator with some substance-over-form discretionary, equity-based authority.<br /><br />One key is to try to place the regulatory authority in institutions that resist capture. A good example is antitrust. It's almost entirely discretionary in the U.S., and yet it's a fairly effective regulatory scheme. Some complain that it is over- or under-inclusive, but it's a lot better than the SEC has been over the past 20 years. That's because judges rarely depart the bench for private industry, and thus have no incentive to please their future employers.<br /><br />DOJ is also an effective federal agency because it largely resists capture. DOJ attorneys frequently depart for private practice, but they go to law firms where they are most valued for their lawyering skills. Their incentive is to develop and show off their legal skills, and impress the Big Law firms who will hire them on that basis.<br /><br />For all the fun people (justifiably, in some cases) have at lawyers' expense, there's an argument that regulatory agencies are better off when management throughout the organization is vested in lawyers.Ben Waltherhttps://www.blogger.com/profile/01863547354724523008noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-41447281528588461232012-01-23T15:02:06.145-06:002012-01-23T15:02:06.145-06:00Scholes law is wrong (why would you quote a guy wh...Scholes law is wrong (why would you quote a guy who did not understand the difference between a simplistic model and the real world?) and so is your corollary.<br /><br />There is an element of Godel's incompleteness theorem at work in that any non trivial set of rules will necessarily be incomplete (not cover every conceivable circumstance) but rules can still cover the overwhelming number of circumstances. The fact that a system of rules cannot be complete is not a reason for having no rules and the fact that a given system of rules is incomplete is not a sufficient reason to switch to a different rule model since every non-trivial system of rules will be incomplete.Absalonhttps://www.blogger.com/profile/09131268683451462949noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-80370746913473012912012-01-23T13:16:29.192-06:002012-01-23T13:16:29.192-06:00"it seems inevitable that regulators, given w..."it seems inevitable that regulators, given wide latitude, and charged only with "safety" and not "growth" will mistake the fortunes of the financial system with the fortunes of individual, existing, institutions, and will quash innovation and competition in the name of safety."<br /><br />Not only that, but through trying to make the system safer, the regulators <a href="http://im-an-economist.blogspot.com/2011/10/regulatory-omissions-paradox-of.html" rel="nofollow">paradoxically</a> increase systemic risk since they cannot overcome the asymmetric information on the market. <br />This is what happened to the financial sector recently, with the MBSs and the eurozone sovereign debt being denoted as safe assets serving as an obvious proof (here's my <a href="http://ideas.repec.org/a/ipf/finteo/v35y2011i1p91-128.html" rel="nofollow">paper</a> on the subject)Vuk Vukovichttps://www.blogger.com/profile/01878567452492217960noreply@blogger.com