Pursuant to a discussion of regulatory capture in the comments of this post, let’s talk about regulatory capture a bit. Regulatory capture means the tendency for regulating bodies to become dominated, captured, by the very institutions they are chartered with regulating. Insurance regulating boards, present in every state, tend to be dominated by the insurance companies that operate in those states. Bank regulation bodies have been dominated by banks or at least bankers. Energy regulation agencies are often dominated by energy producers. And so on.
I think that the tendency towards regulatory capture is inevitable while the fact of it is not. You can see how it would arise. Who knows more about insurance than people in the insurance business? And companies certainly have incentives to capture regulatory agencies. Once they’ve done so they can ensure or, at least, try to ensure that regulation doesn’t hurt their business.
That regulatory capture is a serious problem can hardly be denied. I’ve previously posted that there’s good reason to believe that regulatory capture was proximally responsible for the financial crisis of 2007 to date and the character and structure of policy responses have certainly reflected the viewpoint of the banks and bankers.
Addressing regulatory capture presents a thorny problem. The anarcho-capitalists’ strategy is less or no regulation. I think it’s a flawed strategy: we’ve seen that movie before. I see no good reason that, without regulation, we can be confident in the food that we eat, the pharmaceuticals that are prescribed for us, the devices we use, or that our banks will be run in honest, businesslike ways and the money in our accounts will be available to us when we need it and we know from experience that without some degree of regulation abuses will be widespread. That there are flaws in how all of these things are regulated in the real world does not negate that we’re better off today than we were a century ago.
The technocrats’ solution is better, wiser, more highly compensated experts. This flies in the face of the entirety of human experience which, time after time, has seen smart people do stupid, short-sighted, self-serving things. Selfless all-knowing philosopher-kings are in terribly short supply and are likely to remain so.
The bureaucrats’ solution is another layer of bureaucracy to guard the guards. This is largely how we got to the point at which we have arrived. Without changing the bureaucrats’ incentives, which lie at the heart of the problem, I see no reason that more bureaucrats will solve a problem created by corrupted bureaucrats.
At least here in Illinois, possibly the least populist of the states, I think more populism might help. So, for example, I think that the voters should be able to remove any elected or appointed official from office by a simple majority vote without extraordinary roadblocks being thrown in the way of starting such a campaign. At the very least it should be no more difficult to be removed from office than it is to be put in office. Sunshine provisions, openness in government, might help, too.
I honestly don’t think that our core problem is one of too much regulation or not enough regulation. Rather than do more or do less I think we need to do differently.
This is not to say that there is no regulatory excess. I heard recently of a court case in which, as I understand it, a farmer was denied the right to consume unpasteurized milk from his own cows as a public health measure. Brucellosis, the primary reason we pasteurize milk in the U. S., is practically unknown here, there are only about 100 cases a year (most of the cases among slaughterhouse workers), and the mortality in untreated cases is around 2%. I have known enough dairy farmers and kids who grew up on dairy farms over the years to know that the consumption of unpasteurized milk by these farmers and their families is very commonplace (many won’t drink anything else). If there were a substantial risk from farmers drinking unpasteurized milk from their own cows, we’d know about it.