Does Regulation Always Tighten?

Here’s Robin Hanson’s regulation ratchet theory (via Bryan Caplan):

Look, in any area where we let humans do things, every once in a while there will be a big screwup; that is the sort of creatures humans are. And if you won’t decrease regulation without a screwup but will increase it with a screwup, then you have a regulation ratchet: it only moves one way. So if you don’t think a long period without a big disaster calls for weaker regulations, but you do think a particular big disaster calls for stronger regulation, well then you might as well just strengthen regulations lots more right now, even without a disaster. Because that is where your regulation ratchet is heading.

That’s true as a matter of logic. But it’s false as a matter of reality. Isn’t our experience, at least in certain areas, that regulations tend to weaken (or effectively weaken) as special interests go to work on them? There is something to regulatory capture, isn’t there? How ’bout in the area of finance? Which way did regulations tend over the last several decades?

Plus, this isn’t just a matter of law, but of enforcement and oversight. Can’t we think of an administration or two or three that let the muscles of regulation go a little slack relative to others?

The other relevant dynamic is that the world does not stand still. Technology changes. If regulations are static they cease to be apply, hence they weaken.

In practice, the ratchet goes both ways.

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