March 18, 2010

Those who cannot handle a test failing never test

Sir Tim Harford correctly proposes that “Political ideas need proper testing” March 18. What he fails to understand though is that the main reason for the politicians not wanting to perform tests on their proposals is that if they fail they would not know what else to propose and that is as we know a nightmare for these professional besserwissers.

Take as an example financial regulations. The regulators came up with what they thought was the splendid idea of rewarding banks with lower capital requirements if they kept themselves doing more operations deemed as having lesser risk by some external and supposedly independent credit rating agencies. Because it naturally led to the dangerous overcrowding of traditional safe-havens, like mortgages, the results were absolutely disastrous. But the same faulty regulatory paradigm is still applied, only because the expert regulators kept in their places have no clue about what else to do, and that they cannot allow us to see.