Something called “behavioral economics” has arisen in recent decades, testing and probing many of the assumptions-cum-postulates of basic microeconomics. Researchers have discovered that human beings are prone to biases, cognitive errors, and a whole bevy of choice glitches. We are not perfectly rational.
Shocking, I know.
Some people draw an odd moral from this: Since people are such fools, they require the help of government to regulate them from utter folly and ruin.
Economist David Henderson quotes one of his Facebook friends, TV creative director John Papola, as supplying the “most succinct criticism” of this tack: “Why in the world do behavioral economists who study our flaws and irrational quirks advocate centralized power in the hands of a small group of flawed overlords? If people are irrational, so are government regulators, only they have corrupting monopoly power.”
You’ve seen this kind of argument before, in political theory. James Madison famously noted that
If men were angels, no government would be necessary. If angels were to govern men, neither external nor internal controls on government would be necessary.
Just so: Were we entirely rational, no regulation would be necessary — no laws would. But, given universal human limitations, the regulators themselves require regulation, and a (non-existent) supply of non-biased, error-resistant rationality, to boot.
Forget vast reams of regulations and huge teams of bureaucrats. Instead, perfect the basic rule of law, regulating markets by a well-conceived basic set of rules.
And expect some imperfection.
This is Common Sense. I’m Paul Jacob.