If you saw someone treated for an illness by bloodletting and the procedure was botched so that the patient lost a dangerously large quantity of blood, would you listen if the doctor that said that the proper treatment was to let some more blood?

Unfortunately that is exactly what people insist on doing. There are problems in this world. Some people recognize those problems and propose solutions to them. Frequently the solutions involve some form of government interference in the matter. Very frequently the problem is caused by previous government interference.

When the roots of the problem are explained to those who are proposing government solutions they either ignore the facts, or say that the cause of the problem has to remain in place because it is there to solve a different problem. Often that older problem either never existed in the first place, existed only for a short time under certain conditions which are now obsolete, or was itself caused by an even earlier government intervention.

Sometimes the denial also takes the form of the sunk cost fallacy: We (meaning the state of course) subsidized this monopoly, so we must keep it as it is forever and ever, Amen. But sometimes there isn’t even the semblance of an argument that the sunk cost fallacy possesses, but merely the assertion that it was already decided in the past, so apparently it can never be removed, or that because it is not politically possible to remove it the correct answer is to add more regulations to patch over it. Not A does not therefore imply B.

The most recent popular example of this scenario is the Net Neutrality debate. I don’t know who pimped who first, and it is not relevant to the situation, suffice it to say that the networking companies bought a monopoly on the last mile from local governments by claiming that it was the only way that broadband could be widely deployed profitably. This naturally resulted in the usual problems that state sponsored monopolies always produce.

Net Neutrality is merely one example of the idea described above, which is rampant wherever state created problems exist. The problem is that because of the Hayekian calculation problem state intervention cannot result in a better outcome than the market would produce. Even if by some miracle the Selfless God-Bureaucrat chose the same action as the market he imposes deadweight costs due to his existence, and the enforcement of his decrees.

Every added intervention adds to these deadweight losses, and increases the complexity of dealing with the total burden of the interventions on an exponential curve due to combinatorial explosion. This complexity increase is somewhat masked by the fact that the interventions can be broken up into clusters, for example there is patent law, tax law, tort law, drug law, and a host of others. But this masking also masks hidden time bombs waiting to go off when someone combines previously “separate” sections and produces a result that no one likes or ever intended.

This escalating complexity makes an utter mockery of the concept that ignorance of the law is no excuse. The cognitive burden is too great even for a genius level IQ to reason out for certain what is and is not illegal, let alone the unlucky people in the middle or on the bottom end of the bell curve. Eventually this complexity increases to the point that even the best and most experienced specialists are stumbling around blindly.

This is why adding further interventions is both stupid, and a losing proposition in the long run. It both increases the cognitive load on everyone affected as well as deadweight losses, and can’t even do what it is supposed to do in the first place. On top of that it inevitably serves up a nice big gold plated handle for anyone who wishes to purchase the regulators, thereby removing even the chance that it could stop regulatory capture based problems (such as Net Neutrality).

Yet people insist that Something™ Must Be Done! We must reopen the vein! As long as Something™ does not include a reduction of governmental interference or simply allowing the market to re-balance itself.

“Raymond’s First Law of Political Economics: ‘There is no form of market failure, however egregious, that is not reliably made worse by the unintended consequences of political intervention.’ That’s not a monocausal explanation, it’s more along the lines of noticing that trying to swat mosquitoes with an axe is seldom good for the part of you they landed on.” — Eric S. Raymond

“Perfection is achieved, not when there is nothing more to add, but when there is nothing left to take away.” — Antoine de Saint-Exupery

To put it another way:

(Rip out the intervention) > (Leave things as they are) > (Add more interventions)

Tags: Calculation Problem, Net Neutrality, Sunk Cost Fallacy