Michelangelo and the Whitehouse Office of information and regulatory affairs: We’re under-regulated: shock!

Business is not happy with Barack Obama – and why should they be? After all they were spoiled by having a real pro in the job before Obama got there. Anyway, Obama has been leaning heavily on all arms of government – fiscal policy (obviously), monetary policy (OK, well via the Fed) and regulatory policy.  He’s been trying to get poor people socialised access to medical care (which explains why a lot of Americans want their country back).

In any event regulations come with costs and benefits.  And if this graph below – with the no doubt Herculean assumptions necessary for getting such a nice neat result – is anything to go by, at least in America we’re still at the point where more regulation (if its quality is not too bad) is good for us – ie it generates more benefits than costs – and indeed so long as you’re a Democrat, it seems that benefits outweigh costs by about three or four to one. The other relationship is that the more regulatory costs you impose, the higher the net benefits (which you’d kind of expect, all other things being equal, if we were substantially below the optimal amount of regulation).

Of course thinking in terms of whether we’ve got the optimal total volume of regulation makes about as much sense as wondering whether the script of a play has the optimal number of letters in it. It’s a sufficiently crude way to think that it ‘s likely to do more harm than good. However if the graphs are to be believed it reinforces a pretty important point that I’ve been making for a long time which is that we’re unlikely to get far with what I call the Michelangelo theory of regulation.

You will recall that Michelangelo described his own miraculous sculpture as involving nothing more than taking a block of marble and removing the marble that didn’t belong to the sculpture. This formulation is memorable and funny for various reasons, not least of which that being aware of this idea does nothing to help us sculpt like Michelangelo. And yet this is the basic theory behind ‘regulation review’. The idea is that one erects procedural quality hurdles which act as obstacles to bad regulation and the result will be . . . good regulation.  But if regulation can generate such net gains, is this a smart way to be trying to optimise the value of regulation. I think not.

Btw, this argument applies whether one thinks the charts above are broadly right or not. I don’t have a view on that – and for the reasons explained, don’t need one!

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[…] all the other initiatives around to world to improve regulation, it does so by reference to the Michelangelo theory of regulation. This teaches us that all we have to do to get the best possible regulation is to increase the […]


[…] I’ve cited regulation review as a classic case. Doing regulation well requires attention to how things are working right down to the micro-detail. But the micro-detail is invisible to those in the gods.8 It’s  even relatively low status within economic agencies though it may trump actual experience out in the field in programs.9. And so, for thirty years we’ve had lame top down regulation review policies that don’t work. The first decade of ‘minimum effective regulation’ announced by the Hawke Government in 1986 involved announcements every few years of the need for government agencies to do regulatory impact analysis. From memory, after the best part of a decade there was widespread total non-compliance and about 14% of those analyses that were done were assessed as adequate. Since then formal compliance has risen, but the quality of regulation has not and there’s little evidence that regulatory impact analysis achieves anything and quite a lot of evidence of its dysfunction. […]