Posts Tagged ‘Government regulation’

The age of the kilo-page

November 19, 2010

I recently learned a new expression – “kilo-page” – which means a thousand pages, as in, “The financial reform bill is more than a kilo-page.”  My rule of thumb is that a kilo-page law is not understandable, and that a law that is not understandable defeats the whole purpose of the rule of law, which is to have impartial rules for the common good that everybody follows.  A kilo-page law is an open invitation to the powerful to manipulate the system for their own benefit.

I came across the expression in the comment thread on a web log post entitled Scandinavian Simplicity by an economist named Scott Sumner.  Sumner makes the point that Sweden recently issued a single-page regulation – that everyone who gets a mortgage loan must make a 15 percent down payment – that will do more for financial stability than the whole 1000-plus pages of the U.S. financial “reform” bill.  The actual expression “kilo-page” was coined by another economist, named Bryan Caplan.

Hat tip to Marginal Revolution.

BP: too big to fail?

June 12, 2010

Last night I watched a segment on the PBS Newshour about the consequences of BP failed as a result of its liabilities for the Gulf oil spill.

The conclusion was that a lot of innocent people would suffer. Many British pension funds are heavily invested in BP stock, and retirees would suffer severe loss of income if BP’s stock price collapsed or BP stopped paying dividends over an extended period of time. Some U.S. pension funds also hold BP stock. Then there are BP’s 80,000 employees. I have no reason to doubt that the vast majority of them are doing their jobs well, and have no responsibility for the decisions that led to the Gulf spill.

The people that are responsible, on the other hand, are likely to get off scot-free. BP CEO Tony Hayward received $6.2 billion in cash and shares last year. Even if he loses his job tomorrow, he is not going to have to give it back. The worst-case situation will leave him vastly better off than the people along the Gulf whose properties and businesses have been ruined.

There is no such thing as punishing a corporation. A corporation is an organizational structure and cannot suffer. Only human beings can be punished. Human beings at the head of a corporate respond to economic incentives, which in BP’s case was to protect profits by cutting corners on safety and environmental protection. To offset this, you have to have strict governmental oversight, which the Bush and Obama administrations have failed to provide.