Inequity Aversion and Public Policy

One of the more important psychological concepts for those interested in public and economic policy is that of inequity aversion.  Inequity aversion theorizes that human beings have a natural tendency to sway away from outcomes which they perceive as unfair or inequitable.

I find this to be fascinating because I believe that the root of trade and money can really be found in equity(note: by equity I mean the concept of fairness, not any of the other uses of the word).  Early trade and barter arose with individuals trading one good for another (or a good for a service).  Such calculations really had a rule of thumb approach to them which could be said to be rooted in the individual utility which was driving the actor’s decisions.  However, with the advent of standardized commodity units (like furs, bushels of wheat, cowry shells, etc.) a concept arose whereby people could visualize in their minds what was truly a “fair” deal or not in a way which went beyond a single transaction and could apply to all transactions as a gauge of real value.  Cultural norms could help indicate to someone just how many furs were equal to a bushel of wheat, which added a new dimension to trade beyond simple conceptions of utility. 

If one is to take a pure utility argument to an extreme, then the buyer could pay $1 million for a soda simply because it increases his own utility.  Of course nobody from a modern society would even consider such a deal, even if they really wanted to have a soda, because we know that $1 million is vastly too much to pay for such a good.  The idea of someone paying $1 million for a soda is absurd because any rational person could tell you that paying $1 million for a soda is an unfair deal.  But besides the fact that such a transaction simply doesn’t make economic sense, there is also a moral realm to such a transaction whereby one could say that actual inequity would be occurring.  If any individual were to convince a someone who is unfamiliar with the cultural and market norms of what the fair value of a soda is to pay $1 million for one, most people would say that such an action would constitute fraud, and that the act is not just bad business but bad behavior which amounts to an injustice which should be corrected.

 This moral sense of unfairness coincides with pure economic calculations of what a good deal is, and in many ways serves as an extra factor which helps guide economic actors to coordinate goods in an efficient way.  And this moral factor is not driven merely by being able to sense when an unfair or far deal is occurring, but also by our inner desire to prevent an unfair deal from occurring in the first place.  And it is through this aversion to inequity that we are able to develop standards of what is equitable and what isn’t, and these standards help guide market actors in their own economic decisions in a way that goes beyond mere utility.  The buyer is not trying to simply increase her utility or meet her needs when buying a good, she is also trying to do it in a way which she believes is equitable for her.  We can see this at work in real life, as in most cultures the greedy businessman who overcharges for goods and underpays workers is not seen just as being bad at business, but as a bad person who is a moral villain.  This adds a layer of complication to the argument that actors in a self-regulating free market would simply refuse to do business with unscrupulous individuals, because in addition to refusing to do business with them people also have a desire to actually enact retribution on them.  They do not simply want to harm them in the future by denying them business, they want to make them pay for past crimes as well, in which case simple market action of finding a different person to transact with may not be enough for people to feel that justice has occurred.

The best evidence for inequity aversion and how it works can be found in experiments done in game theory.   The dictator game for example, allows one individual to split apart a group of units he has (often a cake or a pile of money in an amount which is easy to divide), where he has to give a certain percent to another person and a certain percentage to himself.  In the dictator game, the “dictator” has the freedom to choose whatever ratio he wants, so that he could give himself a larger proportion or give the other person a larger portion, or split it 50/50.   Studies of this game found that the most common choice the dictator makes is to keep it all for himself, but the second most common result is to split it 50/50. 

This becomes even more interesting in another variation of the dictator game called the ultimatum game where the second individual can choose whether to reject the offer or not.  While the dictator still has the sole power to split the units apart, the recipient now has the power to veto the deal so that both he and the dictator end up with nothing.  Unsurprisingly, in the ultimatum game the dictator, having knowledge of this, is more likely to create fair deals from the start.  However even more interesting is that these studies have shown that the recipients regularly reject unfair deals, so as to sacrifice their own reception of money in order to cancel the dictator from receiving the higher share.  Offers of 70/30 and under tend to be regularly rejected.

These studies tell us a few interesting facts about human behavior.  First is that individuals in the dictator position do deal out unequal splits, sometimes even dramatically so (100/0) when they feel that they are in a position to get away with it.  And while the majority of individuals may give an unfair deal, there is a sizeable minority who do strive to give out more fair deals.  Secondly, these games show that the recipients will gladly forgo the benefit of the deal if it means canceling out what they perceive as an inequity.  Now there have been some criticisms of some that absolute value would alter the results, aka, if you actually could receive $30 in USD rather than $30 in monopoly money the recipient would be more likely to take the money and run.  However, amazingly enough, experiments done to see whether this is true have shown that the results are not greatly altered, the absolute value of what is being divided has not been shown to correlate with any decrease in the rate of rejection by the recipient, which indicates just how powerful this moral sense of inequity really is in determining human behavior.

And of course these findings should have very real relevance for looking at modern economic arrangements.  For example, we can see elements of this behavior with the labor movements of the late 19th and early 20th century. Workers addressing what they saw as inequity in economic arrangements would resort to strikes and demonstration which not only halted production, but also often cost them their very jobs.  These actions have puzzled many as it seems to be the workers shooting themselves in the foot, after all, they probably would have gained more income if they simply took the deal offered to them by their employers instead of protesting against it.  Those who demonize labor unions use these examples as evidence that labor unions are irrational and harmful to the economy.  However, when the concept of inequity aversion is applied to these events, they seem to make more sense, as they could simply be manifestations of the same behaviors observed in game theory which show just how deeply ingrained morality and a sense of justice is in our economic thought processes.

 Perhaps an even more interesting example could be in communism.  Outraged with what they saw as the unfairness of 19th century predator capitalism, socialists and communists called for a total downfall of the system, and created numerous disruptions for society.  The revolutions which popped up over Europe inarguably created unrest and probably hurt the poor and middle class just as much as they did the rich.  The inefficiencies of socialism in those countries where communism did take hold probably prevented a growth of wealth to the degree that one could argue that economically the proletariat really had a zero sum gain, they probably could have made just as much if not more if they simply carried on with capitalism like those in Western Europe did (and indeed the wealth of Western European nations attests to this).   Of course, when inequity aversion is taken into consideration, one could postulate that these actions may have had more to do with principal rather than any attempt at replacing capitalism with a more efficient system.  In installing a communist regime they insured that the privilege and status of wealth was destroyed, the proleteriet in many ways impeded their own economic future so that they could ensure that the rich would not get away with this perceived injustice. 

And of course this should bring in mind some of the aspects of Nash Equilibrium in the ultimatum game as compared to the dictator game, where by the proposers (dictators) in the ultimatum game are more likely to give a fair proposal than in the dictator game as they understand that if they give an offer which is too one sided they risk losing everything if the receiver vetoes.  In terms of labor history in the West, the fear of losing it all prompted capitalist countries to develop policies such as workplace regulations and welfare states to help calm the proletariat and put them on a stronger footing.  And while some may argue that this had the effect of reducing the marginal utility of capital in favor of labor, it helped to reduce the social strife that characterized that age.  And if one were to consider to the losses which the capitalist would endure from large strikes and threats of revolution, one could argue that the economy actually achieved more wealth and growth after abandoning laissez faire for more social democratic policies as it reduced the incentives of laborers to sabotage the entire economic arrangement.  By realizing what was at stake due to the news coming from places like Russia, capitalist countries realized that perceptions of inequity could cause dramatic problems if they were not calmed.  

Of course, while there is ample evidence for inequity aversion in people, we still find that the dictator is still capable of cheating the other person if he can, a true free rider if you will.  But, the less confident he is that he will get away with it, the less likely he is to attempt such a feat.  Furthermore, variations of these games have found that the options available to the players can alter the level of altruistic behavior seen, with proposers who are overly generous under one variation of the game becoming shockingly licentious in another variation.  This suggests that people’s levels of altruism are directly related to their environment and the options presented to them can alter what they perceive is to be expected of them.  And what they perceive to be expected of them can cause seemingly good people to become much more abusive and unfair, which shouldn’t be surprising to those of us familiar with experiments like the Sanford prison study. 

Overall the findings from these games suggest a picture of humanity which is far more complicated than the one put out by people like Milton Friedman.  Humans are a species which is not only capable of acting in unfair and inequitable ways if they feel that they can get away with it or that it is expected of them, but also capable of amounting to extreme, self-defeating measures if they feel that an injustice has been committed against them.  These contradictions should be of no surprise to those who are familiar with human psychology and the complicated behaviors of our species.  However, to many these contradictions are simply over looked.  Clearly the actions of individuals in these games and real life indicate that there are elements of utility function which remain tantalizingly intangible, which should call into question any models of economic behavior which attempt to present utility function in quantifiable terms.  Because by all measurements, there really is no evidence that the vetoing by the receiver actually increases his utility at all, instead it indicates that an economic benefit can be costlier to an individual if it offends his inequity aversion, things like pride or desire to punish bad behavior are actually weighing in on utility function in a way which can be hard to predict and quantify.  Yet they have obviously shown to be a very important force in allowing an actor to come to an economic decision.

Also, it must be said that the results from the dictator and ultimatum games can be remarkably mixed, the only real constants we see are that proposers in the dictator game are more likely to give themselves a greater share and that receivers in the ultimatum game routinely reject divisions less than 30%.  However, there is still a great deal of individual specificity in just to what degree this occurs in a game and as stated earlier, slight alterations in the rules and options available to the players can yield different rates of unfair proposals and rejections.  We see that human behavior is not a monolith, and while there are trends, it remains incredibly difficult to create a model of a uniform actor in regards to these concepts.

In terms of social policy, we should be very keenly aware of the existence of inequity aversion and seek to avoid those instances where inequity exists.  And given the evidence that people can be willing to shoot themselves in the foot if it means exacting justice, it should be something that is to be feared.  People such as Milton Friedman seem to believe that free market capitalism has all the tools to deal with the complexities of human behavior, including that of inequity aversion.  However, the historical and real life data suggests otherwise.  The property and contract rights in free market capitalism can put people in a position very similar to the dictator in these games, and like the results of the dictator game, some of these individuals choose to act in a way which gives them a bigger piece of the pie.*  Workers, perceiving an unfair situation can resort to extreme measures to correct this injustice, in a way which goes beyond mere explanation of simple economic utility and reflects a level of seemingly irrational and emotive behavior within both the capitalist who knows his deal may anger workers and the workers who hurt their own economic utility in an attempt to exact justice.  

And of course this is exactly the problem which was occurring in the late 19th and early 20th century.  Thinkers like Friedman seem to suggest that courts and contract law could correct this, but this too is incorrect.  The property and contract laws of common law countries evolved from medieval and proto-capitalist economic situations, and were more focused on buyer seller relations and distribution.  While they worked well for the markets of the 18th and early 19th century, they really were not equipped to deal with the complexities of labor relations which emerged in the second industrial revolution.  Many workers were employed under at will employment contracts, which pretty much meant that employers could do whatever they wanted.  And the reactionary courts of the Lochner era were certainly not sympathetic to labor claims, and saw the capitalist as well within his rights to have the unequal bargaining power.  The courts of the late 19th and early 20th century were not friendly to labor, and indeed to this day contract and property law is more oriented towards distribution than towards worker rights.  There was also the element of the culture of the day, which held the capitalist in high regard.  Laissez faire economics puts the entrepreneur and the capitalist on a pedestal, and allows them much freedom in their decisions, as it is said that from their freedom to make decisions, economic coordination can occur which benefits all of society.  This notion is still very much present among laissez faire advocates today, who celebrate the capitalist and believe that his discretion should be respected at all time, as the decisions he makes fit within a bigger picture which in its aggregate makes life better for all of us.  Of course this should make us all think of what I discussed earlier in how the options presented to the dictator can alter his behavior, if the capitalist is told to believe that it is crucial that he pursue profits and must follow his self-enrichment to the fullest extent, he may not only feel entitled to give himself a greater share of the income from production, but that it is actually expected of him to do so.

And it would be hard to argue that these attitudes and behaviors were not the norm in the late 19th and early 20th century, and indeed many capitalists did try to deal out very unfair deals.  This of course created much strife, with an economic model and business culture conducive to allowing unequal distribution of profits from production and a legal system seemingly unable or unwilling to address these concerns, this was a breeding ground for inequity aversion to boil up and create unrest.  So how did society get out of this dilemma?

The answer of course lies with the new form of law which emerged in that period: the regulation.  Unlike the equity and contract law which simply seeks to correct a past harm, or penal codes which outright forbade certain behavior, the regulation dealt with behavior which was legal, and merely set in place guidelines as to how it should be conducted.  By putting in place regulations for the workplace, the capitalist was restricted in his options, making him less likely to and less able to deal out unfair distributions.  And with laws in place that guaranteed certain wages and benefits to workers, these unfair results were simply avoided in the first place.  The evolution and emergence of regulation as a form of law was meant to directly address the flaws in laissez faire capitalism, one of which was the social strife caused by inequity aversion.  The fundamental difference in outlook between regulations and the early common law, is that instead of waiting to correct a bad event, the regulation seeks to prevent it from occurring in the first place.  This notion is much more in line with the realities of human nature, rather than simply “letting things play out” as laissez faire advocates desire, regulations are made with the understanding that sometimes underlying irrationalities in human behavior can create outcomes which rather than correct injustice, only serve to make things worse.  Instead of falling for the Lockean fallacy that individuals will always try to be pro-social and avoid bad behaviors in a free market, regulations are made with the understanding that humanity is a complicated species which is very much capable of producing undesirable results if environmental conditions permit.  Many of the strikes and riots which occurred in that era did not correct any bad behaviors, nor did they yield greater efficiency, they simply represented sunk costs that only hurt society and markets, sunk costs which could have been avoided.

Those who complain about labor regulations and welfare states may not be fully cognizant of the alternative scenarios which could arise if a laissez faire scheme was reinstated.  The inconveniences of regulation and taxation (which as of yet have failed to destroy capitalist incentives and growth) may not just be wasteful spending, but rather important investments which fuel growth by allowing for greater social cohesion and lower incidences of strife.  The normal market mechanisms and cooperative exchange are not enough, there is an element of strong arming in both labor and capital which are unable to resolve these disputes in a cohesive way from market mechanisms and common law alone.  The attempt at creating policies which reduce labor tension and creates avenues for equity and reduction of social unrest are one of the main focuses of the highly successful social markets undertaken in the Nordic Model and Rhineland Capitalism. This also serves to add an objective element to arguments for helping the poor and protecting labor.  Some have mistaken earlier arguments I made regarding the welfare state as simply being moralistic ones on the grounds that we should avoid them simply because it is wrong to be “mean” to the poor.  But when concepts such as inequity aversion are taken into account, those who cannot be swayed on moral arguments alone should be swayed by purely utilitarian and materialistic ones in the fact that ignoring the concept of equity can create social harms which bring about real costs to society that can be quite devastating.

Finally, as one last point, it should be important to note that some studies of the ultimatum and dictator games have found that individuals from industrialized countries are more likely to deal out 50/50 splits than those who are not.  This ties in to the argument I made at the very beginning of this article about the role that perceptions of equity play in people’s ability to make economic calculations.  By having an industrialized economy with regulations, societies are also helping to create moral signaling which guides people as to what an actual equitable deal is.  This not only makes us more proficient economic actors, but increases instances of organic altruistic behavior.  Laws regulating behavior have an extra aspect to them, which while they are unable to govern morality, can signal to individuals just what sorts of behaviors are acceptable and which aren’t.  Just as the capitalist was taught and expected to be inequitable by the culture of laissez faire, the culture of social democracies with regulatory framework and welfare states teaches individuals to act in a way which does not give rise to inequity aversion.  This fits in with the social organism hypothesis I have outlined before, whereby successful societies through natural selection tend to choose actions which ensure their survival and wellbeing.  And if we have a system whereby equitable behavior arises more organically and spontaneously, we will have a better functioning economy and a more cohesive society.  And that is something which is better for all of us.

 

 

*At first glance this appears to be similar to Marx’s model of the capitalist firm, whereby the capitalist is ripping off the worker by stealing his labor value.  However, Marx seemed to see this as a trait inherent to capitalism that was almost structural and would inevitably occur.  In reality the results are a little more complex, some capitalists like Henry Ford or Costco CEO Craig Jelinek do go out of their way to give a fair deal to their workers, while others seem to go out of their way to take as much from their workers as they possibly can.  It is not a monolith, and of course this does fit in line with the findings of game theory which indicate that inequitable deals have an element of individuality to them that can vary from person to person.

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9 responses to “Inequity Aversion and Public Policy”

  1. wilfridcyrus says :

    Your essays are dense and concise. No stone unturned.

    • thehobbesian says :

      Thanks, I credit it to my profession, truth be told I am a lawyer by trade (which is one reason why I like to stay anonymous, protect my own career as any well as protecting my client’s interests by keeping my blogging activities completely separated from anything that could get back to me or them). But one thing any lawyer will tell you is that law school and law practice drills into you a style of writing that will spill over into all other areas of your life. One of the challenges you are constantly faced with in law is having to convey complicated issues and fact patterns in a short amount of space. You want to convey the complete issue to the judge/jury/client/whoever in a way that they will fully understand what you are saying, yet you also don’t want to waste any time(this is especially true for judges who always want you to get to the point). Inevitably you learn to write in the most concise way possible, wasting little space and trying to cover the subject at hand from as many angles as possible.

      • wilfridcyrus says :

        I was wondering what field you work in. You are obviously trained in political science. You are a lawyer, it all makes sense now. I read all the political Facebook pages, blogs, I’m a total article junkie. You have struck gold with The Hobbesian! Great stuff. One of few, very few, I agree with consistently. I had a similar idea and made a page called “The Liberal Philosopher”, now called “Liberal Philosophers”. Inspired by the Facebook page called The Pragmatic Progressive really. I have another character I have used for about 10 years called Wilfrid Cyrus which is a whole nother story. Currently writing a “book” using this name about the early development of economics and the use of money in ancient Persia. It is a historical fiction in parable/myth format describing the development of liberal ideals in metaphor and dialectical conversations among historical figures of the era around 550 BC. I have a background in philosophy and am currently in school headed toward a degree in public administration. I have worked for nonprofit organizations and currently work in the office of a small community college. Glad to meet you, keep em coming!

      • thehobbesian says :

        Ahh so you admin the Liberal Philosophers. I enjoy that page very much, the Pragmatic progressive was an influence for me too. I think its important to have progressively oriented pages which try to rely on academic concepts in politics and economics. The fact is that far too many liberals are completely ignorant of things like economics, I think many of them are turned off by economics for the same reason why many conservatives are turned off by earth sciences: it raises conclusions which can be troubling to them and their worldview. Most liberals just tend to defer to the experts like Paul Krugman for these things. However, I am convinced that a proper understanding of economics and political science can actually create strong arguments for many liberal policies, and in fact economic arguments for liberal policies are often more sophisticated and thorough than arguments for free markets and conservatism. The problem is that because so many liberals are ignorant of economics that they never actually make arguments for things like the welfare state or government intervention on scientific grounds, and really just end up making lay person unsophisticated economic reasoning, outright misunderstandings of economic concepts, or just pure appeals to emotion. This hurts liberal politics because by and large because it gives those opposed to liberal politics grounds to attack liberalism on the grounds that they are just a bunch of flaky hippies who don’t understand how the world works. Conservatives and libertarians tend to be more educated in economics, and while most libertarians and conservatives don’t have a thorough understanding of economics that rises beyond an Econ 101 level of knowledge, an Econ 101 level understanding of these things is still more than complete ignorance of economics, which is often the case for many liberals. These are issues that I think are important and given things like ecological stability and global unrest the stakes for humanity are quite high, we really can’t afford to take a wrong turn and under-utilize government in responding to many of these threats. However, we really can’t win over people simply from pundits like Paul Krugman arguing on tv, much of the persuasion of cultural and political change comes from people debating over the water cooler at work, or a conversation between individuals having a drink at a bar, or people discussing these issues at a dinner party. These informal, small time debates probably play a bigger role in shaping people’s ideas than watching a national debate on tv, and if liberals can’t come up with coherent, cogent and scientific reasons for their views and libertarians and conservatives can, its going to make liberals look bad in the eyes of people who may be on the fence on these issues. And of course libertarians and conservatives never miss a chance to shed light on the fact that liberals in general are very ignorant of economics. I would like to create situations where the liberals defending things like the welfare state or government involvement in climate change in those informal social situations can actually give logical and coherent reasons which are in line with economic science. That is really the way that liberals can send a coherent message. Because liberal policies are quite powerful, and do make sense, but in my opinion the success of liberal policies thus far has been in spite of the unsophisticated economic knowledge of most liberals. If we can change that I think liberalism can be a more popular and powerful force than it already it. Which is why pages like yours are so important. Keep up the good work. I too am thinking of writing a book dealing with political and economic theory, though as for now its really just a long term project and part of the purpose of this blog is a way for me to test out some of my ideas and receive feedback from intelligent individuals such as yourself.

      • wilfridcyrus says :

        I agree with you 100%. I believe in the power of one just as much as the power of many. My main drive is to help shed liberal ideals of their hippie/protester image and replace that nonsense with a strong academic foundation. Liberal ideas are so much more powerful when they are intellectual… or at least coherent. Of course humor helps too, and people always love a good story to help relate big ideas. My page is small but like you said it is these one on one conversations that really sway opinions and shift culture in the long run. These little memes and articles on the internet shape the way people analyze what they see in the MSM. I think Krugman does a great job as a one man army fighting for the intellectual side of liberalism in an easy to understand way. It takes someone like Krugman to sew seeds and help cultivate an environment where people like us can get our point across. The fact that so many liberal minded people do not even understand the history or philosophy behind liberalism — let alone the economics — breaks my damn heart. Case in point, the occupy movement. What a shameful clusterfuck that was. I take aim at people with the passion of occupy and the knowledge of Rage Against the Machine’s first LP. Can’t aim too high, but just high enough that folks can feel they are better off for picking up what you are laying down, but not so much that they feel bourgeois. God forbid one be bourgeois.

  2. John S says :

    (Off-topic; apologies)
    Hello Hobbesian, (John S from comments section of azizonomics)

    I’m enjoying reading your posts. However, I still think there are a few gaps in your understanding of the 19th century depressions (at least in the United States) and 1929 [btw, this isn’t a criticism; there are enormous gaps in my own understanding as well].

    At azizonomics, I already mentioned the pernicious US bank restrictions that led to the currency panics, which were avoided in Canada’s Free Banking system. Re: 1929–I would recommend this podcast by Russ Roberts and Thomas Rustici on the underappreciated effects of Smoot-Hawley on setting off the bank runs: http://www.econtalk.org/archives/_featuring/thomas_rustici/

    Also, please keep in mind that interstate branch banking was still prohibited as of 1929. More here: http://www.econ.yale.edu/seminars/echist/eh03/mitchener-033103.pdf Canada did not have any bank failures in the 1930s, a fact well-recognized by economic/banking historians such as Michael Bordo, Gary Gorton, and Charles Calomiris.

    • thehobbesian says :

      Oh I don’t disagree with you about that. I think that Smoot-Hawley certainly was ill informed legislation and made things worse, along with other policies like restrictions on interstate banking. I reject the monolithic interpretations of the great depression that think it can be deduced down to one or two factors, because, if you look at the historic evidence, there were multiple things at play, and many feedback loops across many industries which were feeding into it. Now some Marxists call this “over-determination” in saying that one can see so many causes in business cycles that it is impossible to point out any single one of them, and hence the only conclusion one can come from is that capitalism itself is to blame. Now I am not opposed to capitalism, however I do think that there is some truth to the idea of over-determination, and that one can say that the seemingly unsolvable riddle of the business cycle probably does stem from some of the basic attributes of capitalism itself, which one could say may be deduced to a capitalist economic calculation problem whereby price signals only focus on near term market conditions, businesses, individuals and governments can easily externalize costs which are not being figured into most monetary calculations in a profit oriented economy, and these costs can build up at the peripheries and take people by surprise in the form of negative feedback loops and dramatic sell offs. That to me would be the best explanation as to how one can look at something like the Great Depression and see so many different things contributing to it, the only real way to explain it would be to say that there is some inherent calculation problem at play where by certain costs and the possibility of feedback loops are not correctly being identified and mitigated by people. That being said, I don’t think that replacing capitalism with socialism is the answer, nor do I believe that there are clear cut answers to this or that any one thing can “cure” it, or that any “cure” would be worth it, because capitalism does bring many benefits.

      But yes, government policies probably worsened the depression, and my criticisms of the banking industry and gold standard shouldn’t be implied to mean that I think regulation for the sake of regulation is going to solve it. Obviously the tight monetary policy of the fed and the use of a gold standard was one such negative factor, as was Smoot Hawley, as was regulations on banking, as was lack of regulation on bank. And things like mechanization were at play too. Overall the institutions of the time were simply ill equipped to deal with the radical changes and modern world, and set out to address the problem using old school tactics. I think its part of the same problem seen in WW1 where 19th century tactics used against 20th century technology led to stalemates and needless deaths. By the end of WW2, businesses, governments and individuals had become more able to deal with the pressures of the modern world and as a result we saw better functioning in both the private and public sector. But yes, regulations on banking can hurt, especially if those regulations are done to punish banks rather than make them more functional, and ultimately I believe that regulations should be designed to improve functioning of an industry and reduce externalities, not punish the industry itself. Dodd-Frank was regulation simply for the sake of regulation, it in many ways is akin to things like Smoot Hawley, which is one reason why the SEC and other government agencies are refusing to enforce much of it. However, at the same time I believe that the deregulation of the 90s put far too much faith in the discretion of bankers, and that turned out to be a bad thing. At the end of the day I believe that these things are extraordinarily complex, there are no easy answers and anyone who has easy answers for these things shouldn’t be trusted. Part of the art of governance is to navigate through this complex world and use force of law and regulation where it is needed, exercise restraint when it has to, and to realize when those situations arise. Almost like the prayer they say in AA: God help me to change the things I can, accept the things I can’t change, and the wisdom to know the difference. But yes, you are right, bad regulations and bad governance made the great depression worse, as did bad business practices. But overall I view the great depression as a great catastrophe where people in all sectors from farming, to government to banking were making choices which only made things worse. It was very much a social crisis as much as it was an economic one.

  3. Marc Solzan says :

    Hit the nail on the head, my friend. This is true Founding Father-Speak, not that garbage the Heritage Foundation and the Koch’s spew. BRAVO!!!!!!!

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