Risk, Reward, and Regulation

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I stumbled upon an interesting description of what it’s like to work as a government bureaucrat. Some people might be outraged, but a more realistic view is that bureaucracies can’t really function any other way. If you want to understand why, read Ludwig von Mises‘ book.

Bureaucracies exist to create and enforce regulations. Regulations can be good things that protect us – but they can also be misguided and inappropriate. I have no idea what the percentages of “good” and “bad” regulations are, but I suspect that the percentage is fairly consistent because of the way bureaucracies must function.

The bigger problem with regulation is that regulation is not free. It costs to create regulations, it costs to enforce regulations, and it costs to comply with regulation. We can measure the cost of creation and enforcement, but we can only guess at the cost of compliance. But the cost of compliance is most important because of it’s widespread impact on the economy. Compliance costs are a drag on business profits, business expansion, job creation, and the creation of new life-enhancing products and services. We don’t know the costs, we don’t know the impact. In short, we don’t know whether our efforts at regulation make life better or worse.

The point of all regulation is to reduce harm and the risk of harm. But if removing one kind of harm introduces another, we may not have gained much and have even lost. The unscrupulous will always find a way to circumvent regulations. Yet few would support a wholesale removal of regulations – the benefits we would lose are easy to see, while the benefits we would gain are hard to see.

Regulations may reduce risk, but with less risk there is less opportunity and fewer rewards. We may have regulated ourselves into a box – and it’s unclear how we might get out.



One response to this post.

  1. […] Risk, Reward, and Regulation (jimdew.wordpress.com) […]


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