Regulations II

 

Liar, Liar

Liar, liar, pants on fire
Your nose is longer than a telephone wire
Ask me, baby, why I'm sad
You been out all night, know you been bad
Don't tell me different, know it's a lie
Come kill me, honey, see how I cry

Aren’t regulations just a protection from lying?

A basic principle of User Optimal solutions (such as those favored by Libertarians), is that all Users have perfect knowledge.  In the absence of perfect knowledge, the assumption is that in any transaction, all parties of that transaction can be trusted.  Regulations are imposed because one of the parties in a  transaction may be lying, while the other parties think that party is telling the truth.  Regulations are not because there are untrustworthy parties in a transaction but because there might be untrustworthy parties in a transaction.  Regulations are merely a way of substituting for perfect knowledge.

Any group of users, such as the United States, wishes to achieve a System Optimal solution.  In an ideal world, this System Optimal solution will be the sum of all of the User Optimal solutions.  But this is only possible if they are indeed User Optimal solutions for every party in the transactions.  If one of the parties in a transaction is not trustworthy, that user will achieve THEIR User Optimal solution, but every other party of the transaction will NOT achieve their User Optimal solution.

For example, Bernie Madoff achieved his User Optimal solution, which in his case included lying, while he was operating his investment scheme.  The victims of Bernie Madoff did NOT achieve their User Optimal solutions.  That is why Bernie Madoff and his Ponzi investment scheme was a criminal offense.  This is also why there are regulations.  Those who rail against regulations are saying that they, and all parties in transactions, are trustworthy so why the regulations.  The problem is that not every party in a transactions might be trustworthy, and in order to protect society, society has to enact regulations.  Are regulations costly? YES? Are costs imposed on trustworthy parties? YES.  Should the cost be borne by the parties of those transactions? THAT SEEMS FAIRER THAN IMPOSING THOSE COSTS ON ALL OF SOCIETY INCLUDING THOSE WHO ARE NOT NOW, AND WILL NEVER BE, A PARTY TO THOSE TRANSACTIONS.  If the regulations are less costly than the consequences of untrustworthy transactions, they are worth it to society.

Regulations are not imposed arbitrarily.  There are Notices of Proposed Rule Makings, NPRMs,  and comment periods for every potential federal regulation. www.federalregister.gov/uploads/2011/01/the_rulemaking_process.pdf.  
If there are objections to these regulations, that is the proper time and way to voice those objections.  If the comments were not properly considered, the laws for NPRMs and their comment periods can be revised, but that is not an excuse for no regulations.

The Supreme Court is supposed to be an arbiter of what is good for society, not for potentially untrustworthy users.  No regulations means that everyone can be trusted.  A nice position, but isn’t that being naïve?  Trust, but verify. Aren’t regulations verifying?