14 June 2010

"Matching Narrative to Policy" and the SDLC

EconLog | Arnold Kling | Matching Narrative to Policy

Mark Thoma writes,
Regulators certainly made mistakes, and there is plenty of room for improvement, but does that mean we should abandon attempts to regulate? Of course not.
It is hard to argue against the proposition that better regulation would be better. But for regulation to be better, I think there has to be some correspondence between the narrative of what went wrong and the proposed regulatory change. [...]

3. The current financial regulation bill matches nobody's narrative. I will explain this view in more detail subsequently. Briefly:

--if the problem was that we deregulated too much over the past 20 years, then why doesn't the bill simply reset regulations to what they were 20 years ago? or 30 years ago?

--if the problem was that house price increases and mortgage leverage got out of hand, then why does government policy continue to try to push mortgage loans with low down payments?

--if the problem is that lenders were exploiting borrowers (which would justify a focus on consumer protection), then why is it that we ended up bailing out the lenders?
That's a very astute point.

The first bullet is especially relevant to my idea in the previous post that public policy should be done according to the system development life cycle.

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