03 May 2008
Rules vs. Principles
The new financial regulatory scheme proposed by Treasury Secretary Henry Paulson as described by James Surowiecki in his column in the April 28, 2008 New Yorker, “Parsing Paulson,” is suited to European cultures that still consider the Government as the grantor of human rights, including the right to do business. In the U.S., since the founding of our republic, we have acted on the basis that it was the people who granted the Government any of the rights it has to rule and regulate. This reflects our fundamental distrust of public officials and has meant the need to closely limit their discretionary power with detailed written laws and regulations.
A rules-based approach to regulation invites gaming the system, as Enron did, and attracts the smartest players to the most highly rewarded vocations—to private enterprise rather than to public sector employment. America would never stand for placing government officials in charge of enforcing even the best principles in the world. A market-regulated economy does indeed need to have boundaries on the freedom of participants to transgress on the liberty and property of other members of society. However, imperfections in drawing those borders can only be corrected after the fact, by a qualified and trusted adjudication system. That is the price we have always been content to pay for our freedom.
The new financial regulatory scheme proposed by Treasury Secretary Henry Paulson as described by James Surowiecki in his column in the April 28, 2008 New Yorker, “Parsing Paulson,” is suited to European cultures that still consider the Government as the grantor of human rights, including the right to do business. In the U.S., since the founding of our republic, we have acted on the basis that it was the people who granted the Government any of the rights it has to rule and regulate. This reflects our fundamental distrust of public officials and has meant the need to closely limit their discretionary power with detailed written laws and regulations.
A rules-based approach to regulation invites gaming the system, as Enron did, and attracts the smartest players to the most highly rewarded vocations—to private enterprise rather than to public sector employment. America would never stand for placing government officials in charge of enforcing even the best principles in the world. A market-regulated economy does indeed need to have boundaries on the freedom of participants to transgress on the liberty and property of other members of society. However, imperfections in drawing those borders can only be corrected after the fact, by a qualified and trusted adjudication system. That is the price we have always been content to pay for our freedom.
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