Comment Rescue: KenB on Regulations

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Patrick

Patrick is a mid-40 year old geek with an undergraduate degree in mathematics and a master's degree in Information Systems. Nothing he says here has anything to do with the official position of his employer or any other institution.

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109 Responses

  1. Avatar Kim
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    says:

    Where I work is voluntarily SOX compliant. So clearly some companies see regulations as better than others (or as providing a competitive advantage).Report

    • Avatar Patrick Cahalan in reply to Kim
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      says:

      There are some good things about SOX, but the best thing about SOX is that it gave a bunch of technical and process guys who were smart enough to start using the phrase, “We need to be SOX-compliant” the ability to change a lot of broken crap that they wanted to change for years.

      There are better ways to solve this problem.Report

  2. Avatar fledermaus
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    says:

    “Regardless of what your boss wants, regardless of what your position is at a company, regardless of what your strict legal duties are and your fiduciary responsibilities are, you have ethical duties to your coworkers and your employer. One of them is to tell them when they are doing something wrong, and make it change.”

    Hogwash. I’m really not sure how it’s the worker’s responsibility to change things that are not in their power to change. A server can’t change a resturant’s policy to re-serve food that has fallen on the floor. A foreman has no power to force a manager to buy sufficent safety equipment. Finally no boss like being told by some underling that he’s doing it all wrong. That’s a one way express ticket to the unemployment line and penury.

    A worker’s job is to please his or her boss by any mean necessary. Full stop. You may not like this, but here we are.Report

    • Avatar Patrick Cahalan in reply to fledermaus
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      says:

      Congratulations, you’re part of the problem.Report

    • Avatar Kim in reply to fledermaus
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      says:

      Tanta Vive!
      Yeah, she told them where exactly they were going wrong.
      And then quit when they wouldn’t listen.Report

      • Avatar Patrick Cahalan in reply to Kim
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        says:

        I know people who have quit due to their companies being wrong. I know people who have been fired because they wouldn’t give up telling their company that they were doing something wrong. I know people who have damaged their upward mobility by refusing to stop telling people that they were doing something wrong.

        Hey, I know somebody that has done all of those things. Intimately. He types using my keyboard.

        It’s doable. It’s not freakin’ rocket science. It hurts all right, especially when you have a mortgage payment, but your choices are make it better or start looking for a new job.

        Nobody says you have to quit full stop and be out on the street (well, somebody might say that but it’s not me). But working some place where they tell you, repeatedly and consistently that you need to do something wrong? How is getting away from this situation not worth the time it takes for you to start looking for a new job?

        Also: if I’m ever looking to hire somebody, the absolute last person I’m going to hire is someone who thinks that their job is to please me by any means necessary. That’s the worst possible case of entrenching group-think I can imagine, and it’s death in the tech industry.Report

        • Avatar Kim in reply to Patrick Cahalan
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          says:

          Patrick,
          glad to see you work in nice places, with good people. It’s quite possible to be hired on a long term contract, and to be unable to get out of it.

          Some companies have banned the use of poison in office politics (to the point of hiring essentially taste testers). The company’s comment: “it made it too easy.”

          People work 100 hour weeks, even if that’s literally the wrong thing to do, because “If you wont’ do it, we’ll hire someoen who will”Report

          • Avatar Patrick Cahalan in reply to Kim
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            says:

            Are we talking about the U.S., here, or China?

            I know people who work 100 hour work weeks, but not at one job.

            P.S. -> if you signed a long term contract and you’re being abused or asked to do something unkosher, you screwed up, hire a lawyer. More regulations aren’t going to help you.Report

            • Avatar Kim in reply to Patrick Cahalan
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              says:

              US. Single job. Midwest. Not my business.

              Yup. But hiring a lawyer doesn’t actually get you out of the situation.
              There are some people it is … unwise… to complain to. or be friends with.Report

              • Avatar Patrick Cahalan in reply to Kim
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                says:

                At some point, your situation sucks bad enough that your best redress is to record everything and then leave and move to a different state.

                There aren’t many times when you get to that point, but when you get to that point that’s pretty much where you are. More rules, or fewer rules, ain’t gonna help you much.Report

              • Avatar DensityDuck in reply to Kim
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                says:

                “There are some people it is … unwise… to complain to. or be friends with.”

                um

                ok

                how exactly are regulations going to protect workers from actual criminality

                because once you progress to actual criminality I’m pretty sure that regulations are no longer something you care about

                Kevin Spacey in ‘Horrible Bosses’: “Dammit! I was gonna break that guy’s kneecaps if he didn’t work twelve hours on Saturday but the damn government passed a law making it illegal to do illegal things!Report

              • Avatar Kim in reply to DensityDuck
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                says:

                … who the hell said anything about actual criminality.
                I know a dude who got someone hired at Enron.
                I don’t think that’s anything called criminal.

                Person A:”My life is too boring, I wish something would come along and spice things up a little.”
                Person B: Hmm… okay. How about you take this little job for me. (Job consists of entirely fabricated, and complicated messy auditing work).

                Person A: This is a complete farce! This doesn’t exist!
                Person B: About time you noticed… I bet you’d like a promotion…
                Person A: Wow, so I get to be management now???

                Person A: *mouthful of cusswords*

                Being friends with trolls is a Bad Idea.Report

  3. Avatar Mad Rocket Scientist
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    says:

    I always love a good rant that cooks everybody!
    +1!Report

  4. Avatar greginak
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    says:

    Great job. I’d add that if business people don’t feel restricted and bit irked at regs then the regs are bad. Regulations are supposed to restraining and limiting things people might try to do. Industry people are going, as you say, to be focused on getting their job done and getting paid. That creates a massive incentive to cut corners as much as possible. Some of those corners might just be fine if they were rounded down but some are needed.Report

    • Avatar Kim in reply to greginak
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      says:

      The good businessman rarely sees regulations as “problems”… particularly not with things like food safety. To them, they’re basic protections that his competition isn’t going to cut the corners he’s morally unwilling to cut (pretty broad definition of morals, even a long term strategy versus a short term one. Did I really just call that morality?).Report

      • Avatar greginak in reply to Kim
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        says:

        That would depend on the industry to a great degree.Report

        • Avatar Kim in reply to greginak
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          says:

          yes, and on the regs. someone passed a few finance regs that cost small caps a shit-ton of money — but those got revised next budget cycle.

          Most regs are decent things, that get put in place after someone dies.Report

      • Avatar DensityDuck in reply to Kim
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        says:

        “The good businessman rarely sees regulations as “problems”… particularly not with things like food safety. ”

        I remember a lunch-truck cook who decided to offer bacon-wrapped hot dogs and just. could. NOT. understand why those mean awful nasty people from the food department were being like soooooooo mean about the way she used the same tongs to handle the uncooked bacon and the cooked hot dogs. I mean, like, what did they expect her to do? Have, like, a whole separate set of utensils for handling uncooked and cooked meat?Report

    • Avatar Mad Rocket Scientist in reply to greginak
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      says:

      Of course, today I read about the Food Truck owner in Amherst who is getting in trouble with the city for not having a permit that doesn’t even exist yet.Report

  5. Avatar Plinko
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    says:

    I have no words for how awesome this post is, Patrick. Thank you.Report

  6. Avatar zic
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    says:

    I sort of take issue with the notion that regulation has to be an adversarial relationship; because I’ve seen evidence to the contrary. Here in Maine, the Department of Environmental Protection (DEP) used to work with many industries to help businesses understand regulatory requirements and to find the best ways, for each individual business, to comply with those regulations. Many big industries, paper is a good example, report violations because they’re actually concerned about them; it means something’s gone wrong, they don’t want the press of a scandal hiding things.

    Where regulation fails is when it’s captured. When the mom and pop bagel shop has to meet the same regulation as a fry shop like McDonalds. When the small farmer has to develop a manure management plan suitable for an industrial farm. Those regulatory captures typically favor the big businesses at the expense of the small.

    But I do agree that there can be excessive regulation. And I think that’s often a result of our inability to budget for planning; for review. Business constantly reviews, revamps, revises their rules and budgets and plans. Doing that in the public sector, where everything has to be announced, hearings held, comments taken into account, and voted on, is really difficult. It seems wasteful; spending all that time and money on the open public process to review what’s already been settled. Better just to add a new layer that addresses the problem at hand. Regulation is actually one area where bigger government; a government with the staff set on reviewing, refining, retuning, or eliminating burdensome regulation, would be a real benefit.Report

    • Avatar DensityDuck in reply to zic
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      says:

      “I sort of take issue with the notion that regulation has to be an adversarial relationship; because I’ve seen evidence to the contrary.”

      The problem is that when this adversarial relationship starts on the regulator side, there’s no real recourse for the regulated.Report

      • Avatar zic in reply to DensityDuck
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        says:

        That is typically not true, you know. Most regulatory agencies have a method of reviewing challenges. (If such a thing is not built into the law in the first place, you’ve got yourself some slack legislators, too.)

        Court systems constantly review regulatory challenges. Some businesses use/abuse regulatory challenges, too. And some businesses begin the whole adversarial relationship to start out with.

        But it sounds nice, doesn’t it?Report

      • Avatar Liberty60 in reply to DensityDuck
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        says:

        We tend to forget that businesses themselves are consumers who need protection.

        Regulations are best when they codify best practices, and raise the overall level of performance above a floor below which we agree serves no public purpose.Report

        • Avatar DensityDuck in reply to Liberty60
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          says:

          It’s also important to verify that the best practices are actual practices, and not someone’s wish list, or someone’s experience from another industry applied in a Procrustean manner.

          It’s obvious that the people who wrote the CPSIA never in a million years thought that the local yarn store didn’t keep detailed manufacturing records for each ball on the shelf.Report

          • Avatar Liberty60 in reply to DensityDuck
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            says:

            Yes, it is.

            Which is why normally regulations are first proposed and offered for public comment and input, where all interested parties are able to address the issue.

            In my industry, the period between a proposed wish list of a regulation is first proposed, to actual enforcement is up to a decade.Report

          • Avatar zic in reply to DensityDuck
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            says:

            You’re actually getting at something really important here.

            There are two steps to the regulatory process. First is passage of the law under which regulation takes place. But that’s only half the story.

            The second, and mostly overlooked phase of regulation, is the rule-making process. This is where the devil of details get’s hammered out into something the regulators and the regulated can actually use. Rule making fascinates me, because most folk pay no attention to it, though it, like the adoption of law, is public process; advertised, open for comment, and up for review and modification until adopted.

            I’m of the opinion that most regulatory capture actually happens at the rule making stage, mostly because industry has a vested interest in those rules, and make sure their trade association lobbyists or their legal representatives participate in the process. (And I don’t think that’s necessarily a bad thing, lobbyists often help educated legislators and civil servants about things and can be most helpful.) But our close focus on the legislative process and lack of attention to the rule-making process is a serious problem; leading to horrid burdens on small businesses, in particular; a way of big business to knock out the mom-and-pop competitors.

            I don’t know if this has ever been researched, but my favorite version of this is car safety seats. They became a big deal when my kids were small; and the regulated size of the seats increased dramatically to the monsters we see today. (Note that European car seats did not have this happen, though there didn’t seem to be any additional infant deaths.) It just so happens that the bigger seats were near impossible to put in an average-sized automobile. And it just so happens that the product most profitable for Big Auto to sell were SUVs and minivans. I can’t tell you how many fellow parents traded in their honda civics for minivans so they could get the car seats in without breaking their backs.Report

          • Avatar Jeff No-Last-Name in reply to DensityDuck
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            says:

            They might or they might not. The CPSIA didn’t come out of nowhere — it came from the tons of lead-containing toys that the local toy shop might have on its shelves (and the local Wal-Mart certainly did).Report

        • Avatar zic in reply to Liberty60
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          says:

          I think there’s also another aspect of this: regulation adds certainty for shareholders. Those regulations on deep well oil drilling, for instance, make investing in a big oil company a safer, a more certain, investment. I don’t think the average investor spends a whole lot of time investigating a companies environmental practices, the presume they’re at least following the practices dictated by regulators.

          Similar deal with financial institutions.

          Good regulation creates certainty.Report

  7. Avatar Liberty60
    Ignored
    says:

    I remember there was a scandal in Israel a few years back.
    A wedding party was being held on the upper floors of a banquet hall, and suddenly the floor caved in, and hundreds of people were thrown down into the rubble; some died, many others hurt.
    It turned out it was a combination of shoddy design and shoddy construction with lax inspection- sort of the perfect storm of corner cutting and cheating.

    There was a bit of handwringing over the culture of cheating that had produced this- that all those smug developers and builders who were applauded by their peers for being so clever for having gamed the system and pocketed quick loot were guilty, but so was the society that applauded and encouraged them to act this way.

    I think this touches on the idea of culture, and community and self interest. That when we develop and facilitate a culture that values self interest above all, and severs the network of moral obligation to others, we end up with a culture that requires regulation, even for the simplest of things.Report

    • Avatar Kim in reply to Liberty60
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      says:

      This is not why we have fire escapes.
      Regulations sometimes tend to be asking engineers:
      “Okay, people died. How do we stop people from dying?”

      How much we regulate children is a different thread.Report

    • Avatar Patrick Cahalan in reply to Liberty60
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      says:

      That when we develop and facilitate a culture that values self interest above all, and severs the network of moral obligation to others, we end up with a culture that requires regulation, even for the simplest of things.

      Yes, this is part of the problem. Well, one can quibble about what constitutes self-interest, of course, in defense of the libertarians who will come to defend self-interest and the conversation will dive right into the weeds.

      Neither the die-hard Democrat nor the die-hard Republican will support limiting the rules to cover the basics and using other methods to catch the scofflaws, and neither the die-hard Democratic voter nor the die-hard Republican one will pay attention to what the downside is of their policy preference, and what it is they need to do to compensate for that, at an individual level.Report

      • Avatar Kim in reply to Patrick Cahalan
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        says:

        I’ll support limiting whatever damn rules you please.
        AFTER you show me that what you’re doing is working.
        and is relatively immune to regulatory capture.

        Good Luck!

        (Naturally, it’s only my “liberal” friends who actually get me to support taking things out of the governmental sphere).Report

      • Avatar Liberty60 in reply to Patrick Cahalan
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        says:

        How could we possibly NOT “support limiting the rules to cover the basics and using other methods to catch the scofflaws”?

        What does that look like? It sounds a lot like “Lets eliminate unnecessary red tape.”
        Good idea!

        AND in fact- most industry groups do have full time lobbyists who constantly comb through regulations looking for things to challenge or modify. Every year state legislatures enact thousands of new regulations, and often they strike old ones even as they enact new ones.Report

        • Avatar Patrick Cahalan in reply to Liberty60
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          says:

          It sounds a lot like “Lets eliminate unnecessary red tape.”

          Yes, that’s what it sounds like. And virtually all of the discussions start there, and immediately veer off into the woods of what constitutes “unnecessary”.

          Usually with the name-calling and the finger-pointing.

          (Not you, sir. General political discourse)Report

          • Avatar Liberty60 in reply to Patrick Cahalan
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            says:

            You are absolutely correct.

            A friend of mine sits on a code-writing organization, that writes the building codes used by nearly every city in America.

            It is illuminating, to hear how codes are produced. But oddly enough, its also refreshing.

            Nearly every stakeholder is represented- engineers, architects, city officials, fire chiefs, accessibility advocates, consumers, builders and so on. It is pretty much a democratic process, where all sides end up having to convince the rest to adopt a code section.Report

        • Avatar Kim in reply to Liberty60
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          says:

          … “using other methods” means assassination to me.Report

  8. Avatar Tom Van Dyke
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    says:

    Big dust-up August 2011:

    “President Obama on Tuesday informed House Speaker John Boehner (R-Ohio) that his administration is considering seven regulations that would cost more than $1 billion.

    Boehner asked for the list of costly rules last week as the GOP prepped a fall jobs agenda focused on stopping regulations and cutting taxes.”

    http://thehill.com/blogs/on-the-money/801-economy/178739-obama-outlines-7-costliest-regs-to-boehner

    As I recall, Obama caved. Google

    obama boehner regulation

    Plenty of hits from Aug 26-30. There isn’t much after that, for some reason.Report

    • Avatar Kim in reply to Tom Van Dyke
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      says:

      Okay, I’ll put you down as valuing my husband’s life (and my quality of life) as less important than “small businesses”.
      Little known fact: you kill the small business creators, you also kill their (future) businesses.Report

      • Avatar DensityDuck in reply to Kim
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        says:

        “I’ll put you down as valuing my husband’s life (and my quality of life) as less important than “small businesses”.”

        I’ll put you down as valuing a vague statement about “quality of life” as more important than my wife continuing to operate her small business.Report

        • Avatar Kim in reply to DensityDuck
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          says:

          Would you like me to quantify the amount of sickness I get from imbibing ozone, NOX, and all the other noxious chemicals in pittsburgh’s air?
          Do i need to pull you some lung cancer statistics today?Report

    • Avatar Kim in reply to Tom Van Dyke
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      says:

      http://www.nytimes.com/2011/09/03/science/earth/03air.html?pagewanted=all&_r=0
      Boehner stopped talking, and people stopped combining the regs.
      FOR SOME REASON.Report

      • Avatar Tom Van Dyke in reply to Kim
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        says:

        There was a billion dollars-plus worth of specific job-killing proof, as requested. There’s more.Report

        • Avatar Kim in reply to Tom Van Dyke
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          says:

          20,000 jobs at $50,000 apiece? Okay, let me put that a bit differently. 40,000 jobs?
          Forgive me, but that’s reasonably small potatoes.Report

          • Avatar Tom Van Dyke in reply to Kim
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            says:

            There are plenty more examples. If you’re interested in the truth, you’ll find them.Report

          • Avatar Liberty60 in reply to Kim
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            says:

            How is that calculation derived?
            “This regulation kills 5,306 jobs.”

            I get how, in the aggregate, regulation dampens economic activity- planes that are mandated to be serviced regularly mean they fly less often, carry fewer passengers, and produce less revenue per plane.
            I get that.

            Is there, in this calculation, a way to reckon the cost of flying dangerous planes? Of measuring somehow the probability of crashes, the economic impact of that, and the resulting change in consumer behavior?

            In a word, no. There are way to many assumptions and variables for that to be quantified in any meaningful way.

            So when we hear this stuff airily tossed out- “40,000 jobs killed by regulation” its not utter bullshit, per se, but just a truthy statistic, a Doocyism, a talking point that is disconnected from any serious discussion.Report

            • Avatar Patrick Cahalan in reply to Liberty60
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              says:

              It’s also not precisely correct.

              I mean, you know, that whole “market forces” thing. If the regulation affected just the one company, then the competitors could grind them into the dust.

              Since it is spread industry-wide, the cost of doing business goes up for everybody, and the response of the business is to raise prices, naturally, to recoup those costs.

              So it only kills jobs if the raise in price, across industry, is high enough that the new price causes a significant number of the people who would buy the plane ticket to drop out of the buyer’s half of the market.

              Granted, of course, this can happen. Certainly; especially in the short-term until the market corrects at the new price equilibrium.

              But it’s not a given, and if it serves a purpose of reducing long-term risk, it actually, yanno, keeps the company around longer.

              Because the plane don’t crash and they don’t get sued into nonexistence, five years from now.Report

            • Avatar DensityDuck in reply to Liberty60
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              says:

              “Is there, in this calculation, a way to reckon the cost of flying dangerous planes?”

              Of course! The DOT, for the purposes of accident financial liability, estimates the value of a human life to be one million dollars. Multiply that by the average number of air travelers, by the expected increase in accident rate, and there’s your cost.Report

        • Avatar Patrick Cahalan in reply to Tom Van Dyke
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          says:

          Also on the Obama list are regulations regarding rearview mirrors that would cost $2 billion, and two involving the hours of service commercial vehicles can perform before maintenance that would cost between $1 billion and $2 billion.

          I’m not sure that either of those are going to kill jobs. One can certainly argue that increasing a maintenance cycle is going to *add* jobs, or at worst be “total-job-neutral”.Report

          • Avatar Morat20 in reply to Patrick Cahalan
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            says:

            My job is heavily tied in with aircraft maintaince cycles. I don’t do them, or determine them, but the people who use our software and talk to us DO.

            And see, they personally are very keen about maintaince cycles and inspections because otherwise their airplanes fall out of the air. But they are also very up front that their bosses HATE hearing things like “we will have to reduce this part’s lifespan”.

            Because that costs money, right here and now. Whereas “airplanes falling from the sky” is some nebulous possible future thing, and frankly they’ll probably be in a different job then and even if they weren’t, liability is a different department and budget. Not their problem.Report

            • Avatar bookdragon in reply to Morat20
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              says:

              This is precisely why my college adviser – a prof of aerospace engineering – was afraid of flying. Not because he didn’t trust the design design, but because he’d been involved in investigating enough crashes to not trust airlines to do the maintenance that they should. (“Public safety always turns out to be less important than profits.”)Report

              • Avatar MikeSchilling in reply to bookdragon
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                says:

                This is my problem with nuclear power. Not that it can’t be run safely, but that its safety will be in the the hands of people who saved a few bucks by laying off the guys who trimmed trees away from power lines, because how often is there a fire?Report

              • Avatar Patrick Cahalan in reply to MikeSchilling
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                says:

                The real problem with nuclear power isn’t that.

                The guys at the atomic energy agency are pretty good about that sort of thing.

                The real problem with nuclear power is when the Japan earthquake happens and everyone who operates a nuclear power plant in the U.S. says, “See, this is why we’ve been saying we need Yucca Mountain online, so that we don’t have to keep our spent rods on site, which was never a design idea in the first place” and politicians here, there, and everywhere and environmentalists here, there, and everywhere all say, “Nope, can’t move it through my territory! It’s like, uber-super-scary stuff, way worse than all that stuff that we routinely ship through our counties that’s actually …. way… worse…”

                And they are stuck trying to put a square peg in a nonexistent hole.Report

              • Avatar Kim in reply to MikeSchilling
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                says:

                Just make them build it in places that are already nuclear wastelands (like Utah!). Then ban babies there.Report

            • Avatar Patrick Cahalan in reply to Morat20
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              says:

              Because that costs money, right here and now.

              How is it that so many people who are in business management have skipped over the part of the MBA coursework that talks about NPV, risk assessment, TCO, and risk abatement?

              Because seriously, I see this stuff all the time and the whole reason you read that material in the first place is so that you take your lizard brain out occasionally and put in the part that’s supposed to actually do the job of management.

              I don’t get it.

              It’s really weird. The only conclusion I can come to is that most people who get an MBA didn’t actually do the work.Report

              • Avatar Liberty60 in reply to Patrick Cahalan
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                says:

                Are you seriously asking why people behave irrationally and pursue short term gain at the expense of long term benefit?Report

              • Avatar Patrick Cahalan in reply to Liberty60
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                says:

                Let me put it to you this way, an MBA is an advanced degree.

                I see a lot of people with these advanced degrees doing things that they are taught specifically not to do during their degree program very often. Very, very often.

                Occasionally you’ll see a doctor who goes down the woo-hole and starts promoting crystal therapy. It’s pretty rare.

                Occasionally you’ll see an engineer who goes down the woo-hole and spends 20 years trying to invent a perpetual motion machine. Also pretty rare.

                Why are so many MBA-holding people unable to do the basic task to which they have received specific training?Report

              • Avatar Stillwater in reply to Patrick Cahalan
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                says:

                That may be specific to MBAs, but it follows from Morat’s point above, no? Rationality is a wonderful thing, I guess, in that long term rationality can be rationally subverted by short term rationality. That happens all the time, but that trade off and the consequences that result from it are more pronounced the higher up the food chain you go. And MBAs are frequently very close to the top, or close to those close to the top, of the food chain. It’s no wonder that they “forget” their training when the bottom line becomes the top priority.Report

              • Avatar Morat20 in reply to Stillwater
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                says:

                Except it IS long-term rational for them, often! It makes them a heck of a lot more money, for one, than “long-term rational”.

                That’s very rational.

                The way businesses — large ones, at least — are structured these days, a lot of the ‘risk’ stuff is on other people’s shoulders, not the guys making the calls.

                Say I’m CEO of a large corporation. I’m pulling down 7 figures a year, have a 5-year contract, and a sizeable golden parachute and buyout provision. I’ve got stock options for a lot more.

                In front of me are two choices: One that’ll skyrocket stocks over the next 18 months — plenty of time for my options to vest and sell — and then slowly eat the company alive over the next four years. Or I’ve got the long-term play, which will position us better four or five years down the line, but take a sizeable chunk out of our available cash for no immediate benefit.

                Which is ‘long-term rational’?

                See, that’s the problem. There’s the COMPANY’s “long-term outlook” and the individual EMPLOYEE’s “long-term outlook”. And they aren’t even remotely the same.

                And that’s true all the way up the management chain. Heck, MORE true the higher you go in most companies. If you’re the sole owner, majority shareholder, etc? Then the outlooks are the same.

                But if you’re a board member or a CEO with a stake you can sell or a contract with some goals? Screw the long-term health of the company. You not only won’t be there, it’s in your best interests to milk the company for all you can while you are there, to hell with what happens after you’re gone.

                That’s quite rational.Report

              • Avatar Stillwater in reply to Stillwater
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                says:

                Oh yeah. I agree. That’s what I was clumsily getting at.Report

              • Avatar Trumwill in reply to Patrick Cahalan
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                says:

                Patrick,

                I had a former supervisor-of-a-supervisor (an MBA) who was really, really big into one of those pop-business books. I think it was 7 Habits. Week in and week out, we’d get excerpts from the book in our email box.

                At some point, I actually got around to reading the book. Let’s just say that what he learned from it was… very selective.Report

              • Avatar Patrick Cahalan in reply to Trumwill
                Ignored
                says:

                This I find not at all surprising, and ashtonighlzingly astonishing at the same time.

                How do these people get through a degree program? Are there that many bad business programs?

                Don’t answer that.Report

              • Avatar Stillwater in reply to Trumwill
                Ignored
                says:

                You’re thinking that people who get MBAs want to be MBA practitioners in the art of MBAlogy. They don’t. They want to get close to the money. So close that a bunch of it falls on them.Report

              • Avatar Patrick Cahalan in reply to Trumwill
                Ignored
                says:

                Oh, sure, there’s undoubtedly some of that.

                But still, it seems to me that people who run the program would want to make it, not impossible, but certainly more difficult for people like that to get the degree, right?

                I mean, most academics (including the business academics I’ve met, which is not an inconsiderable number) have some sort of faith that their field is worthwhile, in and of itself. They have some sense of professional pride.Report

              • Avatar Plinko in reply to Patrick Cahalan
                Ignored
                says:

                I dunno, Pat, why do so many doctors prescribe treatments they know aren’t necessary? Why are all the holders of high elective office such a bunch of mendacious panderers?

                Lib60 almost got there, but it’s not short term gain at the expense of long-term benefit, it’s because people are better at working to their own personal benefit than our cultural business norms are at aligning incentives with long-term goals.Report

              • Avatar Patrick Cahalan in reply to Plinko
                Ignored
                says:

                Oh, yeah, I know.

                It still makes me want to hit people with a brick. Especially when they start telling me that regulation is a killer problem for business.

                Seems to me the problem for the business is that they have idiots working for them, really.Report

              • Avatar Plinko in reply to Plinko
                Ignored
                says:

                The other thing we’re really, really bad at is figuring out who’s competent, much less who would be competent.

                Honestly, when I look around long enough, I start to believe it’s a miracle that anything happens in business at all.Report

              • Avatar Troublesome Frog in reply to Patrick Cahalan
                Ignored
                says:

                Do all MBAs receive meaningful training in probability and statistics? My company builds devices that do statistical pattern recognition and classification, so I’m knee deep in that stuff on both the software and the manufacturing side. I’ve found that our MBAs are (almost accross the board) totally lost when it comes to interpreting defect rates or any other statistical data that doesn’t boil down to a simple percentage. I just figured it was possible to get the degree without going down that path.Report

              • Avatar Patrick Cahalan in reply to Troublesome Frog
                Ignored
                says:

                I dunno about other MBA programs, but the one I’m familiar with (at Drucker) has a fairly robust Quants class, that and Financial Accounting and Corporate Finance are all required regardless of your concentration, unless you qualify out.

                It’s not like you’re taking a graduate program in mathematics with a concentration in statistics… and it’s certainly true that just about every social science program at just about every university has a statistics requirement… and there’s still a lot of bad statistics in a lot of social science publications. So there’s that. Just because they teach it doesn’t mean you learn it, or you keep it in your head.

                But even the guys who limp through stats pretty much have to understand the basics of investment, risk, and NPV in order to graduate.Report

              • Avatar Kim in reply to Patrick Cahalan
                Ignored
                says:

                Occasionally you see engineers intentionally sent down the rabbit hole. apparently they made better inventions paranoid than sane.Report

    • Avatar Patrick Cahalan in reply to Tom Van Dyke
      Ignored
      says:

      House Majority Leader Eric Cantor (R-Va.) on Monday revealed that the GOP will target 10 regulations this fall in an effort to provide relief for small businesses. The four EPA regulations that Obama listed were already on the GOP’s list of rules to target.

      Goddamn it I hate this sort of reporting. This is like talking to a guy who is reporting on two different people each claiming to have a list of communists.Report

  9. Avatar DensityDuck
    Ignored
    says:

    “So our response to a couple of bad actors in a system is to increase the tax on the honest instead of ejecting the bad actors? This makes sense in what Bizzaro universe?”

    Because, up until we decided that what they had done was bad, they weren’t bad actors, by the nominally-objective standards of the law (which we’ve decided to use in lieu of, say, throwing all the ugly fat people in jail and letting young blonde women with big breasts do whatever they want.)

    I don’t think I like the idea of passing laws making something illegal and then prosecuting people for having done it before it was illegal.

    *********

    On the one hand, it’s obviously a huge pain to have some bureaucrat decide that it’s time to mandate that everyone in the country operate and report in the same method…which just happens to be their favored method…and it’s not the one you use.

    On the other hand, it’s hard to argue that having identical operating-and-reporting methods is a bad thing, because that makes it a lot easier for someone who doesn’t work there to understand what’s going on.

    The response to that is that “understanding what’s going on” is something that’s far more difficult for a giant corporation with thousands of employees and hundreds of business activities than it is for Benny’s Handmade Tea Cozies which has four people and sends out maybe fifty items in a good month. Sure, maybe it’s not a good business practice that Benny’s mom entered data into the inventory/parts-list spreadsheet sometimes columnwise and sometimes row-wise, but there aren’t more than fifty parts numbers total; surely someone whose job it is to audit businesses should be able to perform an audit of that business.

    *********

    Part of the problem, I think, is like what Pat Cahalan mentions above; the impulse by regulatory bodies to Fix This Long-Standing Problem (or, more often, to find things that sort-of look like problems and declare that they need Fixing Right Now.) The impulse to tinker, in other words, rather than to establish whether a particular practice is a problem or merely non-standard. I think that much of the resistance to regulatory compliance comes from the perceived attitude, on the part of the regulators, that whatever they say goes no matter what, and that the only choices are compliance or failure.Report

    • Avatar Kim in reply to DensityDuck
      Ignored
      says:

      I like this! I really really like this!
      I think that most businesses need to be better at getting the feedback back to the regulators. “Okay, see, here’s how we provide your information — quickly and efficiently!”Report

    • Avatar Patrick Cahalan in reply to DensityDuck
      Ignored
      says:

      “I don’t think I like the idea of passing laws making something illegal and then prosecuting people for having done it before it was illegal. ”

      I agree. That’s not what I’m talking about though.

      The definition of fraud is pretty straightforward, “an intentional deception made for personal gain or to damage another individual”.

      Absent a regulatory framework, the defense argues that what they were doing was neither intentional nor a deception. The prosecution has to make that case.

      I suspect in many cases of the financial crisis you can get off on a lack of evidence. However, it’s pretty obvious to me that intentional deceptions were going on and I bet there’s enough evidence to hang a bunch of folk who admitted, somewhere on the side, that it was pretty likely that Moody’s rating of AAA on this trench was a bullshit rating, but hey, that’s enough to get the customer to buy it and ship that baby because whoooo! money.

      In the slog of all the people who were involved in the financial meltdown, there were maybe a bunch of people who weren’t smart enough (or didn’t care enough about things not directly in their department) that they wouldn’t go to trial, if investigated. There’s gotta be a bunch who did. There’s evidence in there to prove it. But you have to investigate them to find it.Report

      • Avatar DensityDuck in reply to Patrick Cahalan
        Ignored
        says:

        “Absent a regulatory framework, the defense argues that what they were doing was neither intentional nor a deception. ”

        Well…yeah? Like I said, up until something is codified in law as illegal deception then it isn’t illegal deception. Unless you’re proposing a Looking At Me In A Funny Way standard of determining financial malfeasance.

        If someone comes at the quarterback from his blind side and grabs the ball out of his hand and runs it back for a touchdown, do you call an Unsportsmanlike Conduct penalty even if no such conduct occurred?

        “it’s pretty obvious to me that intentional deceptions were going on ”

        There are very few laws against Being Dumb, mostly because the market will eat people who act dumb. The problem is that if everyone in the market acts dumb the same way at the same time, it can take a long time for that to actually happen. But I’m sure you’d agree that making laws against Being Dumb is just going to encourage people to find smarter ways to be dumb.Report

        • Avatar Patrick Cahalan in reply to DensityDuck
          Ignored
          says:

          Like I said, up until something is codified in law as illegal deception then it isn’t illegal deception.

          Oh, for cryin’…

          Intentional misrepresentation of a product is fraud, Duck. It’s always been fraud.

          Just like killing someone is murder. We don’t need to wait for somebody to find a new way to kill somebody and then add it to the list of, “Ways to kill people that are prohibited by law”, do we? Really?

          But I’m sure you’d agree that making laws against Being Dumb is just going to encourage people to find smarter ways to be dumb.

          Sure.

          I’m not talking about people being dumb. I’m talking about the fact that right now, somewhere in Goldman’s data backups, there’s an email from one guy to another guy together with a reply that shows that both of those guys knew that Moody’s AAA rating of the thing that they were selling was based upon baloney.

          Those guys engaged in fraud. I’m pretty sure that you can sell that to a jury. This isn’t a case of, “Hm, well, that might be malpractice, but was it really reasonable for that doctor to have known about this new treatment…” because the evidence is going to be pretty black and white.

          It’s a case of, “Holy crap, these guys actually did know exactly what was going on and they did it any way, and hey, here’s another email thread where they actually bragged about how much money it made them.”

          You know how I know those emails exist? Because the alternative explanation is that everyone who worked in the financial industry from 2000 to 2008 is a moron.

          They got away with it. And they’re going to get away with it next time, too… because they’re still in the system.Report

        • Avatar Dave in reply to DensityDuck
          Ignored
          says:

          There are very few laws against Being Dumb, mostly because the market will eat people who act dumb. The problem is that if everyone in the market acts dumb the same way at the same time, it can take a long time for that to actually happen. But I’m sure you’d agree that making laws against Being Dumb is just going to encourage people to find smarter ways to be dumb.

          Is this to say that you believe that the investors that bought toxic shit masquerading as AAA securities were not deceived?Report

          • Avatar DensityDuck in reply to Dave
            Ignored
            says:

            “It’s a case of, “Holy crap, these guys actually did know exactly what was going on and they did it any way, and hey, here’s another email thread where they actually bragged about how much money it made them.””

            “Is this to say that you believe that the investors that bought toxic shit masquerading as AAA securities were not deceived?”

            So your argument is that we don’t actually need more regulations or declare things illegal ex post facto, but instead needed to enforce the regulations we already had?

            I agree! And we’re done here.Report

      • Avatar zic in reply to Patrick Cahalan
        Ignored
        says:

        Actually, many laws are written so that existing practices can continue; so that old ways are ‘grandfathered’ in, and the law only applies to new things.

        The notion of laws applying retroactively don’t pass muster; this is why the clawbacks of banker bonuses were so controversial. But those clawbacks did not make something illegal retroactively, either.Report

    • Avatar NewDealer in reply to DensityDuck
      Ignored
      says:

      That depends on what you think makes something wrong or not.

      Is something wrong merely because a legislature passed a law and said “Practice X is wrong and illegal” or are some practices just wrong by nature?Report

      • Avatar DensityDuck in reply to NewDealer
        Ignored
        says:

        I agree! Someone discussing overtly pro-religious activities in a workplace is wrong by nature because it imposes the notion that pro-religious attitudes are the societal norm and acts to marginalize and other-ize alternate viewpoints.

        Oh, wait, that wasn’t what you meant at all? Well. Maybe you should be more careful about saying that things are Just Wrong and Should Be Punished.Report

    • Avatar NewDealer in reply to DensityDuck
      Ignored
      says:

      To broaden the debate. Let’s use insider trading as an example.

      I have a friend who argues that society only thinks insider trading is wrong because our government says it is wrong. If there were no laws against it, we would have no moral problems with insider trading.

      I am not sure that this is the case. The same goes for a myriad of practices and is true in vice-versa. There are many people who see nothing immoral or wrong about narcotic use despite the illegality of narcotics.

      There are probably plenty of everyday Wall Street practices that are not illegal but plenty of people would describe as being close to or actually fraudulent, immoral, deceitful, and wrong based on near-universal notions of decency and dignity and fair-dealing.Report

      • Avatar DensityDuck in reply to NewDealer
        Ignored
        says:

        Of course “everyday Wall Street practice” is deceitful. All exchanges are based on asymmetry of information, which is a form of deceit; otherwise there would be no possibility of mutual benefit.

        Sure, the guy thinks he snookered you by getting you to pay a thousand bucks for a worthless pile of dirt. But what he doesn’t know is that you’ll use it to expand your bait-worm farm and make back three times that much in your first season. Was it wrong for you to deceive the seller by omission?Report

        • Avatar Kazzy in reply to DensityDuck
          Ignored
          says:

          That’s not deception.Report

        • Avatar Dave in reply to DensityDuck
          Ignored
          says:

          Of course “everyday Wall Street practice” is deceitful. All exchanges are based on asymmetry of information, which is a form of deceit; otherwise there would be no possibility of mutual benefit.

          The presence of asymmetrical information does not always involve deceit. For example, you hold a long position in XYZ stock, and based on your research, you decide that the company’s growth prospects are slim and you choose to sell the stock. I do my own independent research and based on that, I come to the opposite conclusion and have a more bullish view of the company. Hypothetically, if I buy your shares at the current market price based on my own opinion that happens to be different than yours, how am I being deceived? Feel free to think I’m an idiot and you found some muppet to take your shares.

          Here’s a better example of deception: you are an investor in mortgage-backed securities and I am Bear Stearns. According to the prospectus we provide to you, we represent that our due diligence on the underlying pool is very extensive and in accordance to applicable underwriting guidelines. However, the reality is that we did not conduct such a review, and our internal controls are such a mess that there is no way we can address any issues that may arise. Moreso, our internal documents (i.e. emails, etc.) will provide evidence of these problems.

          It’s not a perfectly accurate description of the complaint against Bear Stearns/JP Morgan but that looks like textbook deception to me (and the illegal kind).

          http://newsandinsight.thomsonreuters.com/uploadedFiles/Reuters_Content/2012/10_-_October/nyagvjpmc.pdfReport

          • Avatar DensityDuck in reply to Dave
            Ignored
            says:

            “The presence of asymmetrical information does not always involve deceit. ”

            Of course it does! I knew I was gonna make lots of money from the deal. I didn’t tell YOU anything about it. I, therefore, deceived you. Presumably if you’d been able to see my business plan you would have known I’d be willing to pay more, but I withheld that information and cheated you out of potential revenue.

            See, you’re looking at this as “just normal business”. I’m trying to show you how it could be seen as deceitful and shady. Let’s not forget that the original contention was that “[t]here are probably plenty of everyday Wall Street practices that are not illegal but plenty of people would describe as being close to or actually fraudulent, immoral, deceitful, and wrong…”Report

            • Avatar Kazzy in reply to DensityDuck
              Ignored
              says:

              But how are you harmed? Deceit involves harm. The absence of good is not necessarily harm.Report

              • Avatar zic in reply to Kazzy
                Ignored
                says:

                No, Kazzy. Google it. Deceit is the action or practice of deceiving someone by concealing or misrepresenting the truth. There’s no quality of harm necessary to deceit; though a moral person might think that one’s trust is harmed by deceit.Report

              • Avatar Kazzy in reply to zic
                Ignored
                says:

                You’re right, zic. I was thinking of fraud. Thanks.

                Still, I don’t know if me not telling you that I plan to use the pile of dirt you just sold me for $1000 to make millions via worm farming qualifies as concealing or misrepresenting truth. Had you asked and I said otherwise, maybe.Report

            • Avatar Dave in reply to DensityDuck
              Ignored
              says:

              First,

              See, you’re looking at this as “just normal business”.

              Yes I am. That is because this IS my “normal business”. I work in commercial real estate with a focus on the healthcare sector and an emphasis on the capital markets and investment banking. I’ve been at it for seventeen years, three of which was spent at one of the Wall Street banks.

              In my business, the fact that I don’t have access to your business plan is irrelevant. In fact, your business plan will be heavily dependent upon the information I provided to you prior to making your bid. Based on that information, I will know damn well how you are getting to your price and what assumptions you are making in your business plan (this is real estate not rocket science). It’s not too hard to figure out what cards you’re holding.

              Let’s say for the sake of argument that I did have your business plan and I thought your business plan was so out of whack and so unreasonable that I thought there was no way in hell that you were going to make your plan. In my eyes, you are overpaying by several million dollars and would have access far less than what you would have offered.

              You think you are deceiving me by withholding the fact that you would have paid more. I couldn’t care less since I think you are dumb money that is about to grossly overpay so my only thought is to get the deal done so I can laugh all the way to the bank. If I made no material misrepesentations of any of the facts, then I did not deceive you in any way whatsoever.

              I’m trying to show you how it could be seen as deceitful and shady.

              Your example doesn’t work. No one in the business that I am in sees deceit in the way that you are portraying it here.

              What does fit into your example is a situation where someone seeks to purchase a real estate asset, bids aggressively to show a high price in order to get the deal tied up and then attempts to negotiate the price down long after the deal is tied up and a contract has been signed. Some investors operate in this fashion.

              It’s deceitful as hell because one party has an expectation of closing at a price while the other party knows damn well he’s going to renegotiate the price. It’s unethical as hell and not a good way to do business. However, it is not illegal.

              The remedy for this isn’t regulation. No amount of regulation will address these issues and, without sounding too abstract, there are market mechanisms in place that are more than sufficient to close certain information gaps. One such method is that when it becomes well known that Investor ABC has a reputation of aggressively locking up deals only to re-trade, they get the bottom-feeder reputation. We don’t deal with people like that. See? Problem solved. 😉Report

              • Avatar DensityDuck in reply to Dave
                Ignored
                says:

                “It’s not too hard to figure out what cards you’re holding.”

                So not only do I not provide you with the information, but you take it as a given that I’m not going to.

                And then you say this:

                ” I couldn’t care less since I think you are dumb money that is about to grossly overpay so my only thought is to get the deal done so I can laugh all the way to the bank.”

                Meaning that not only do you think that I’m hiding something from you, but you think that you’re hiding something from me. And, in the grand tradition of business, we both think each of us is cheating the other.

                Which is the point I made right up at the start of this thread.

                “No one in the business that I am in sees deceit in the way that you are portraying it here. ”

                Yes, just the same way that fish don’t have a word for “water”.Report

  10. Avatar Tod Kelly
    Ignored
    says:

    Man, this was a killer post.Report

  11. Avatar James K
    Ignored
    says:

    Good post Patrick.

    I think the key issue here is the compliance burden – how much work a regulation is for the regulated. I believe the US government pays too little attention to the compliance burden of its regulation. The solution might not be less regulation, so much as better-designed regulation.Report

  12. Avatar Roger
    Ignored
    says:

    Let me just do an “add on” comment building on what Patrick has covered so well…

    Regulations, even good regulations, change the competitive playing field. Certain parties are less or more impacted, and thus a regulation can create winners and losers. For example, in the insurance industry, massive regulations on a state by state level were annoying to all companies, but the net effect was to bifurcate the market where really big companies with massive teams of lobbyists, attorneys and actuaries thrived, and smaller regional good old boy companies with strings connected to the local regulatory board thrived*. Most other competitors were at a severe disadvantage.

    The risk of distorting the playing field is that it encourages shifting the competition from the market to the regulatory arena. If I can spend a million on lobbying for good rules which help me and hurt my competitors, then I can generate a good return on the effort. Of course my competitors want to pass good regulations that help them, so they spend a million on theirs. Soon we start trying to pass not so good regulations which help us and hurt them. Then we start proposing total BS regulations knowing they can be used as bargaining chips against our competitors. Any company which fails to enter the regulatory playing field is quickly driven out by those that do.

    Regulations often self amplify in a destructive, zero sum fashion, clogging up the arteries of the industry they attempt to improve.

    * one state actually had an intricate set of rules that applied to every company that sold insurance with the exception of two dozen or so local companies that got “grandfathered”. Guess what the big companies did? They bought the grandfathered unregulated companies and thus the big companies got to go “unregulated” .Report

  13. Avatar damon
    Ignored
    says:

    Excellent post! I agree with a lot of this.

    Couple other points.
    I don’t believe that you addressed political influence to regulation. By that, I mean, politicians leaning on regulators to go easy on a regulated group because 1) they employ large numbers of folks in the district, 2) the politician got a shed load of money from the business as a contribution.

    I work in a regulated industry; in fact, I’d say one of most onerous. There are regulations about what you can bring into and send out of the country from the State Dept, from Customs, from other countries’ Gov’ts. I’m bound by several gov’t agencies regarding how our work is costed, and accounted for. The company is bound by GAAP, by SOX. Political contributions are closely looked at. Certain aspects of the company deal in additional regulations imposed by other branches of the gov’t I’d prefer not to name as you’ll then know what industry I work in. It’s a hell of a lot of regulations and, in a lot of them, the penalties range from VERY large fines, to debarment, to prison.

    I’d say that several or more of these regulations impact each employee, and for many folks, dozens. We have people in our company whose sole job is to monitor new regulations in their field (say Customs) and make sure every other employee is in compliance. We also have a code of ethics we’re required to sign. There is annual training on Harassment, conflict of interest, fraud, and all that stuff I mentioned above from each of the agencies.
    I joke about this, but in reality, one of my “unwritten” jobs is to ensure that people don’t go to jail for making a wrong decision. Can you imagine the amount of CYA that goes one just in case something goes ass backwards and there is an investigation?Report

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