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Comment by slg | Hacker News Reader

I don't understand the mindset that believes that a poor regulatory environment helped cause the financial crisis and sees that as an indication that we should have less regulation. That is like seeing your deadbolt was broken when someone robbed your house and instead of investing in a better lock, an alarm system, or a security camera, you just decide to leave your front door open 24-7.

Yes, bad regulations exists. However the recipe to fix bad regulations is not no regulations, it is good regulations.

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Here's the mindset explained:

We think regulation will always be strongly influenced by the regulated entities, since they have by far the biggest skin in that game, and in the end, regulation will always end up "bad", much like a dropped $20 bill will always be taken.

This concept is called "Regulatory Capture" by economists, it has been extensively studied, and I'm sure you can find reading material by googling.

I am familiar with regulatory capture. I am not familiar with any well-respected economist who has argued that regulatory capture is a forgone conclusion of regulation. But either way, regulatory capture is not a symptom of bad regulation. It is a symptom of a corrupted political system. Putting stronger restrictions on lobbying and reforming campaign finance law would be a much better step to fix regulatory capture than widespread dumping of regulations.

I also want to point out that regulatory capture is completely counter to the example that nemo44x mentioned above in which they stated that regulation forced banks to make loans they wouldn't have ordinarily made. The idea that the banks didn't want to make those loans and only did it to meet regulatory standards is incompatible with the belief that the regulation was co-oped for the benefit of the banks.

> Putting stronger restrictions on lobbying and reforming campaign finance law would be a much better step to fix regulatory capture than widespread dumping of regulations

To me that's a naive view of how fundamental the problem is. Consenting adults who stand to gain a lot at the expense of a third party will always find a way to help each other out.

Just my personal feeling, of course. I have no proof to offer.

Besides, I think the main mechanism for Regulatory Capture is influencing the regulator directly, not the legislators. At least in the US, the law behind the regulation mostly just says that the new TLA agency is to issue rules that it deems are in the interest of some lofty vague goals.

> The idea that the banks didn't want to make those loans and only did it to meet regulatory standards is incompatible with the belief that the regulation was co-oped for the benefit of the banks.

Keep in mind that there is more than one lobby group. A big force behind "give more loans, everybody should own a home" is the National Association of Realtors.

So the banks don't want to give the loans (because they know there will be defaults) but the Realtors want them to; the "compromise" is to move the risk away from the banks.

The law was a moral hazard -- move the risk from doing something stupid risky onto somebody else and of course the banks are going to do it then. It was what we "wanted" them to do, which is apparently why the people enacting it didn't think too hard about why they didn't want to do it on their own.

Is that better or worse than allowing all sorts of unregulated crazy behaviour via free market incentives?

I'd rather imperfect regulation and tweaking lobbying rules than toxic waterways etc.

The better alternative in my mind is that you can sue for damages if some activity harms you or your property.

This is fundamentally different from regulation in that there is no regulator to influence.

The system also has a multi century track record that is pretty darn good. Certainly compared to the more recent regulatory system.

You're talking about two completely different categories of problem.

Companies polluting waterways is an externality. Many customers prefer the company that doesn't spend money abating pollution, because it allows them to have lower prices. To address that you need some kind of rule against polluting, or a property right by the people downstream to not have toxins dumped in their river.

The problems with tech companies are rooted in a lack of effective competition. If there was a company that provided the exact same services as Google or Apple except that it respected your privacy better or had lower prices or didn't leverage their platforms into monopolizing ancillary markets, customers would choose that in the market. The people being negatively impacted by their behavior are their own users, which means that all you have to do is make a better alternative available and that alternative would win out in the market. Which means that in this context, any rules that impede new competitors are counterproductive, as are the existing rules that caused the lack of effective competition to begin with.

I think its more like suggesting you can't jump half-way across a muddy ditch. You either go for it with everything or you stay put. Anything in the middle is going to be a bad time.

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