An improbable position by Chris Berg

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In a century, there has been at least one firmly held belief that was proved false. The Titanic was not unsinkable. But 100 years after that was proven false, another belief has been shattered: that Chris Berg of the IPA would never, ever advocate more government regulation.

But as I was pointed to his piece in no less an esteemed outlet as the Wall Street Journal, that position sank. In the piece, Berg argues that, in contrast to James Cameron’s story, it was not an aesthetic concern that led to too few lifeboats being aboard the Titanic. Instead, it was that the regulatory body, the Board of Trade, had not updated their regulations for decades and did not require more lifeboats. Indeed, the Titanic had been designed to accept them as its owners anticipated that the regulations might be updated.

So the issue was not cost, per se, or aesthetics, but whether the regulator felt it necessary to increase the lifeboat requirements for White Star’s new, larger, class of ship.

This undercuts the convenient morality tale about safety being sacrificed for commercial success that sneaks into most accounts of the Titanic disaster.

The responsibility for lifeboats came “entirely practically under the Board of Trade,” as Carlisle described the industry’s thinking at the time. Nobody seriously thought to second-guess the board’s judgment.

But why didn’t a private operator choose to do something else. The regulator did not cap the number of lifeboats, it imposed a minimum. You can always put in more if you think it is in your customer’s interests.

Now Berg isn’t going to admit that there is such a thing as good regulation, let alone that the Titanic disaster could have been solved by such. Instead, he seems to point out that the existence of the regulation itself caused the problem.

And regulated entities tend to comply with the specifics of the regulations, not with the goal of the regulations themselves. All too often, once government takes over, what was private risk management becomes regulatory compliance.

The idea is that because there is a regulation, private firms throw their own judgment out the window and do something against their own interests when they could have freely chosen otherwise. No, you can’t have that. Chris Berg, don’t you know that once you admit to the world that private firms (or people) don’t freely choose what is good for them when they can that you are down a slippery slope to legitimate roles for government?

Absent the last few sentences, Berg’s piece stands a model for advocacy of good government regulation.

Also, has anyone every wondered whether if we take the movie profits into account, the whole Titanic thing had a positive rate of return?

3 Responses to "An improbable position by Chris Berg"
  1. I’m not sure that I follow your logic, Joshua. Is it not rational to put one’s resources (be they capital, intellectual or moral) towards some other purpose if one believes that some authority has done the hard work for you?  I’m sure there are more learned accounts of it, but the linked article is another example of regulation (arguably) being counterproductive – by creating a dissincentive for independant thought.  . . . http://www.spiegel.de/international/spiegel/0,1518,448747,00.html

  2. Joshua,
    Try as I might, I cannot convince myself that the BIS capital adequacy rules did not make the GFC worse than it might have been in their absence. The Tier I and II ratios were set initially having historical reference to a preceding more regulated banking world that was also less dependent upon hot money in the form of wholesale counterparty funding. But the rules became “sacred”, and market analysts punished the share price of banks that were seen to have lazy balance sheets, i.e. banks holding extra reserves. Basel I and II were presumed to have done the heavy lifting in calculating risk margins. Almost everyone stopped thinking about real risk. Perhaps Basel III will solve the metaphorical problem of how many life boats to have on the ocean liner.
    John

  3. Yes, Chris Berg’s piece adopts the classical Libertarian logic inversion of asserting that problems apparently due to too little regulation are actually the result of having any regulation whatsoever
     
    In this case, the builders of the Titanic, and every other sea vessel would have had the perfect number of life boats if there was no regulation at all, but, alas, the existence of the Board of Trade’s life-boat-number regulations.
     
    For more rent-seeker funded libertarian nonsense, tune into the publicly funded ABC tonight, and tomorrow night, and the night after that….
     

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