Regulations impact a wide array of market and social activities that influence our daily lives. Regulations are attempts to correct perceived market failures, caused by information asymmetries, externalities, and principal-agent problems, and to provide public goods, which would otherwise be underprovided. Government actors are responsible for identifying these issues, weighing the costs and benefits of intervention, and designing and implementating regulations to improve society.
Good regulations help mitigate issues in the economy without inciting new problems and without the costs exceeding the benefits of intervention. This requires intensive analysis and an awareness of the complexities of social life. Our society is complex and dynamic where people face knowledge and incentive problems, whether in the market, politics, or civil society. By examining this complex reality, we can better understand why regulations arise and persist and the challenges of reform. We argue that this approach to policymaking and policy analysis requires humility; an acknowledgment of the challenges we face when intervening in our society.
This volume intends to cultivate an appreciation for the complexity of human decision making and the incentives that drive human behavior. By examining specific policy changes, it will delve into the effects of and lessons learned from regulations in financial markets, computer and internet governance, and health care innovation and delivery. This volume will be of interest to students, scholars, and policymakers who seek to understand the complexities of regulation in a dynamic social world.
Introduction by Stefanie Haeffele and Anne Hobson
Chapter 1: Economic Flaws in Computerized Socialism by Joseph Kane
Chapter 2: Reading Between the Lines: Rulemaking Discretion in the Federal Railroad Administration by Stephen Jones
Chapter 3: Williamsport Revisited: Applying an Austrian Lens to the Lumber and Fracking Booms of Williamsport, Lycoming County, Pennsylvania by Erika Grace Davies
Chapter 4: The Fable of the Packets: A New Institutional/Market Process Approach to Network Neutrality by Nicholas Krosse
Chapter 5: Community Broadband, Community Benefits? An Economic Analysis of Local Government Broadband Initiatives by Brian Diegnan
Chapter 6: Entry Regulation in Hospital Markets: The Impact of Certificate of Need Laws on Hospital Concentration by Ariel Slonim
Chapter 7: Section 1115 Waivers: An Increasing Part of the Medicaid Program by Kelly Ferguson
Chapter 8: Monetary Policy After the Crisis and Alternative Systems for Macroeconomic Stability by Chris Kuiper
Chapter 9: Failed Interventions: The Increasing Ineffectiveness of Monetary and Fiscal Policies in High-Debt Environments by Katelyn Christ
Chapter 10: Risk-Based Capital Regulation and Bank Asset Allocations by Kristine Johnson
Chapter 11: Legal Entity Identifiers as Public Goods and Regulatory Management of Financial Risk by David Rann
Chapter 12: Economic Effects of the “Volcker Rule”: Restrictions on Banking Activity and their Consequences for Economic Stability by Derek Thieme
Stefanie Haeffele is Senior Research Fellow, Deputy Director of Academic and Student Programs and a senior fellow for the F. A. Hayek Program for Advanced Study in Philosophy, Politics and Economics at the Mercatus Center at George Mason University.
Anne Hobson is a Program Manager for Academic and Student Programs at the Mercatus Center at George Mason University.
Creating effective public policy is hard: Policymakers never have all the facts and they can’t predict all the consequences. Thus, a dose of humility is essential in policymaking and the researchers in this timely volume show why through insightful examples ranging from economic development in Pennsylvania to state Medicaid waivers. It’s an important book for policymakers and analysts alike.
The Need for Humility in Policymaking helps to remind students, scholars, and policy practitioners of our limited capacity to anticipate how people will react to changes in their incentives. This volume makes it clear that overlooking a relevant aspect of culture, a key social norm, or the importance of local knowledge when designing policies can have dire social consequences.
Economists, even after the Financial Crisis of 2007, haven’t exactly fostered a reputation for policy humility. This is primarily because mainstream economic models often do not fully incorporate concerns for knowledge and incentive problems in policy implementation. Thus, most policy advice proffered by economists implicitly assumes that policymakers, and the economists advising them, have both the adequate information and the proper incentives to make precise interventions in complex economies. The lack of concern for these real-world policy challenges makes policy interventions seem much more simplistic than they actually are. This in turn emboldens policymakers to undertake interventions without due humility. That lack of humility often leads to unintended consequences that, in at least some cases, are worse than the problems the policy was intended to address. In The Need for Humility in Policymaking, Haeffele and Hobson bring together twelve case studies of policy, ranging from telecommunications to banking policy, detailing the economic consequences of hubris in policymaking. Collectively, these chapters make a compelling argument for both economists and policymakers to embrace humility when it comes to policymaking.