Regulations, a Necessary Evil

When we think of regulations, most of us curse the bureaucrats and politicians responsible for them. Elon Musk, the boss of Space X and Tesla, shares that view. But Musk went a step further: In his biography of Musk, Ashlee Vance quotes Musk’s assessment why regulators rarely change the rules:
“If a regulator agrees to change a rule and something bad happens, they can easily lose their career. Whereas if they change a rule and something good happens, they don’t even get a reward. So, it’s very asymmetric… How would any rational person behave in such a scenario?”
(As you can see, Musk is hyper-logical. Like Steve Jobs, he demands the impossible from his employees. But Musk, coming from a science background, will also tell his employees that if they can explain to him how the laws of physics don’t allow for what he asks, then he will back down.)

But what would happen if we minimized (and in some cases, even eliminated) regulations, outside of areas where people would die e.g. aviation or healthcare? The finance industry in the US got very close to that, starting from Ronald Reagan’s term. That didn’t end well very well, did it? And while we may curse the “greed is good” mindset of Wall Street, things are a bit more complicated than that. Sure, there was a lot of outright fraud too, but a lot of the other problems arose because the buyer of financial products often has no ability to understand or assess the risk of what he is buying!

This point is best explained via an analogy: if you go to the casino tables, you know you are taking a risk, that you may lose money. But the financial instruments had gotten so complex leading upto the financial crisis of 2008 and the ways to evaluate them so complicated that a lot of people “didn't even know they were at the table”!

At other times, we need regulations because of what Seth Godin says:
“(When it comes to wearing a helmet) some people feel awkward being the only one in a group to do so. A helmet law, then, takes away that problem and we come out ahead. Same for seat belts.”
And so perhaps, regulations are a necessary evil:
“Guard rails always seem like an unwanted intrusion on personal freedom. Until we get used to them. Then we wonder how we lived without them.”

I’d agree to that, except that regulations need to evolve as the situation changes. Then again, maybe Musk’s assessment at the top of this blog may well rule out that possibility…

Comments

  1. Ramiah KumarJanuary 7, 2017 at 12:01 PM

    Your finish line, to me, has a little something that is arguable. You say, "I’d agree to that, except that regulations need to evolve as the situation changes. Then again, maybe Musk’s assessment at the top of this blog may well rule out that possibility…" How come Musk's "if the laws of physics don’t allow" let it not be taken up come in the way of all possibilities. Musk's point can only exclude all those that so-far-known physics disallows. There all always innumerable possibilities that are still open within the framework of what physics and all other sciences allow. That could be well be the case with changing regulations that need to evolve over time.

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