Wednesday, July 24, 2013

Less Regulation, more capitalism

The Signal and the Silence by Adam White, City Journal Spring 2013: "“Skin in the game is the only true mitigator of fragility.” The surest way to reduce the threat that unforeseeable risk poses is to make sure that those who create the risk also bear its potential costs."

This is the flaw in regulatory thinking. Instead of writing rules that will prevent people from taking bad risks but allow them to escape the consequences of taking bad risks by saying, "Hey, I followed all the rules," we should see that those who take decisions bear the consequences of those decisions. There is a name for the system that does that: Capitalism. All of the government interventions that are made in the name of protecting capitalism from itself have the perverse effect of protecting decision makers from bad decisions, leading to...more bad decisions.

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