[pjscott]

> The regulator can still set legal penalties high enough to stop any innovation, if they want to.

A liability model has a couple of advantages despite this:

1. The regulator has some slack to not set penalties insanely high. As long as they're seen enforcing those penalties against someone periodically, and as long as the penalties sound like a big number to the general public, they can look like Stern Serious Regulators who are doing their jobs properly. The difference between a $5M fine and a $10M fine can have huge financial implications, but to the political circus those numbers are both roughly the same size, i.e. big. This allows the regulators to be more reasonable if they want to be.

2. Using liability rather than specific procedural rules lets the people closer to the ground decide how to most efficiently mitigate risk. Suppose that you run a factory, and sometimes people get injured by careless operation of a rotary saw. A naive regulatory approach might be to require that an additional person be watching whenever the rotary saw is in use. And that would probably help with safety somewhat, though at great cost. But if the regulator instead just requires workman's compensation payments to be made when someone gets hurt, then you can try to figure out a better way using your own knowledge of how your factory operates. (Historically, the adoption of workman's comp laws led to factories hiring engineers to make the equipment harder to accidentally misuse. That rotary saw, for example, would have had a cheap guard retrofitted -- and that would improve safety much more, for a much lower cost, than the "have an observer at all times" rule.)

[js8]

The liability model has a big downside, though. Because sometimes people in charge are idiots, they ignore common sense and make risks. So they possibly get burned only when accident happens, which costs human health and lives.

Regulation is intended to prevent human harm by setting and enforcing a safety standard.

[AnthonyMouse]

That only applies to large rare risks. If a risk is common, anyone who ignores it quickly goes out of business from the liability, so anyone still in business is taking effective measures. If a risk is rare and has a low impact, ignoring it frequently is the right thing to do.

You're left with things like plane crashes, which have to be minimized even if they're already rare. But that kind of regulation is extraordinarily expensive, and then the same regulatory model gets applied where it isn't needed.

[roenxi]

> You're left with things like plane crashes, which have to be minimized even if they're already rare.

I know we're all trying to be moderate here, but I'm not very good at that:

1) It is irrational. The cost-benefits of aircraft safety make no sense. Planes are held to a standard that we don't hold buses and trains to. We should strive to make rational decisions as a matter of policy.

2) There is no reason to think the US regulators are any good at what they are doing. As the thread root comment points out, the incentives are terrible. US industrial policy over my life time has consistently led to Asian growth and US stagnation in ways that were predictable. The US has banned most of the avenues that it could grow by, and coincidentally growth has largely stopped. Very similar story in Europe too, big focus on banning stuff (plus a bit of redistribution) and small focus on how to achieve more prosperity.

The US is dedicating the lives of countless smart people to taking a thing that was going to fly through the air like a bird and ... not changing the outcome much. They could have been doing something else that was more useful, like competing with China for telecoms leadership.

I don't think the evidence is there for this "having" to be minimised. The big picture looks a lot like people are behaving emotionally, that is sometimes leading to irrational decisions and those irrational decisions have added up to cause real harm. People should be more accepting of other people taking reasonable risk.

[vkou]

> Planes are held to a standard that we don't hold buses and trains to. We should strive to make rational decisions as a matter of policy.

What are the poor ROI irrational decisions that the FAA makes on airline safety, how many lives do they save, and how many dollars do they add to the price of my ticket?

It's easy to say that things are not optimal. Let's say that's the case. What would you change?

> The US is dedicating the lives of countless smart people to taking a thing that was going to fly through the air like a bird and ... not changing the outcome much. They could have been doing something else that was more useful, like competing with China for telecoms leadership.

The US isn't a command economy, it can't redirect human effort like that, introducing subsidies into telecoms will distort the markets, and most of the country's intellect is wasted on financial innovation and adtech and middle management, anyways.

[pjscott]

Thank you. We are nowhere close to the Pareto-efficient frontier for risk reduction. We could be safer, while sacrificing much less prosperity for that safety, if things were structured better.

(The optimal number of plane crashes is not zero, as the saying goes, and it’s probably more than we have now.)

[robertlagrant]

Optimal by what measure? I don't know the saying.

[AnthonyMouse]

You multiply the cost of prevention by the risk of a crash and see if it exceeds the cost of a crash.

Some plane crashes can be prevented with a $0.30 warning light. Preventing those plane crashes is optimal.

Some plane crashes can only be prevented by permanently grounding all planes, because they'll be caused by a confluence of improbable events. Trying to mitigate every implausible circumstance that could potentially lead to a crash is not optimal, even when some of them proceed to actually happen.

[harimau777]

I think it's worth keeping in mind that the Asian growth has often occurred due to their governments placing little value on human life and/or wellbeing. I'm not sure that's something that the US should aspire to emulate.

I'm not sure of a good way to have a middle ground between excessive regulation and devaluing human wellbeing. In that case, I'd rather that we err on the side of excessive regulation; especially since there are already powerful financial interests advocating for the other side.

[AnthonyMouse]

> especially since there are already powerful financial interests advocating for the other side.

There aren't actually powerful interests advocating for reduced safety. What they want is increased profits.

One way to do that is by eliminating safety measures to save costs, but liability for harm already removes that financial incentive because the cost of the liability should be greater than the cost of the mitigation in any case where the mitigation is cost effective.

Another way to increase profits is to impose "safety regulations" on smaller competitors so they go out of business and larger incumbents can raise prices. Powerful financial interests do not oppose this, they promote it.

[roenxi]

1)

We were talking about aircraft a moment ago. Are low-status people known for their frequent flying? There are a lot of places where the problem clearly has nothing to do with valuing people - skilled workers aren't exactly treated like dirt, but they're often the ones that regulation cripples. I personally want to see nuclear scientists and engineers allowed to drop their standards to only 2-5x safer than current practice by other energy providers so that we can open up an economic boom in clean energy but obviously that ain't happening. Crippling safety standards continue to be the order of the day.

2)

We're living through the greatest expansion of living standards in the history of humanity. There has never been anything comparable to what has been happening over the last 70 years in Asia. Such an unprecedented rapid improvement that the English language doesn't have the words required to describe it.

There is something there that the US should aspire to emulate. I don't think we know what [0], but more effort should be going in to figuring that part out. If it was placing little value on human life then the US should do that, the results justify putting emotions aside.

How much is this "placing value on human life" worth anyway? https://en.wikipedia.org/wiki/List_of_tent_cities_in_the_Uni... paints a grim picture of how useful all this valuing is to the people on the ground. There is a force in politics that doesn't believe poor people have the capacity to improve themselves if given small economic opportunities. This blinding ignorance is leaving people worse off. In practice, 4% real growth in the economy would do much more for everyone than complaining that pro-growth policies seem kinda mean. Why should people care that they seem kinda mean? They work.

[0] I heard a cute theory that Maoism decimated the bureaucracy so much that it couldn't control China's economy.

[actionablefiber]

> Planes are held to a standard that we don't hold buses and trains to.

Or highway/pedestrian/cyclist safety, for that matter?

[konschubert]

That is where mandatory liability insurance comes into play. Because the insurer will check... and if the people in charge are idiots, the insurance will charge them high premiums.

I am not sure how well this works in practice - but I think the idea has real merit.

[aero142]

There is an issue with correlated vs uncorrelated risks. This is the reason that only the federal government can offer FDIC insurance for banks and disaster insurance in Florida. When banks fail, they tend to all fail at the same time and there is no insurer that could hold enough reserves to actually pay out if they all fail together. Private insurance can cover fire insurance for homes, but is unlikely to have enough in reserves to pay if a category 5 hurricane floods half the homes in Florida.

[harimau777]

To make sure that I'm following, is what you are saying that the risk is that there's a big enough disaster that the insurance company(s) can't pay everything that's owed to those who have been harmed?

[aero142]

Correct. I'm saying that private insurance is good at insuring uncorrelated risks, like car wrecks, but usually, only the federal government can enable insuring correlated risks. Suggesting that mandatory liability insurance can a good policy alternative to regulation is correct, but if you are regulating something large enough with correlated risks, only the federal government can every really provide insurance. Banks pay FDIC insurance, and bank failures are usually covered by this, but it's pretty clear that the pool of money to save banks is backstopped by the federal government in case of a cascading failure. Even for uncorrelated risk, if the payout event is bad enough, it can't be insured. For example, insurance on a nuclear plant is backstopped by the federal government, because no private insurer could ever really insure the worst case scenario.

[pjscott]

The usual hack for dealing with this is to require liability insurance. The insurer has incentives to set premiums at a level that reflect risk, along with reasonable contract conditions -- e.g. "Put guards on all your rotary saws, and yes we will be sending inspectors in to make sure they're being used properly."

(How is this different from an ordinary procedural regulator? Because the insurance market has competition, which means that the insurance companies aren't only trying to optimize for reducing risk -- they're trying to reduce risk efficiently. And if they're not very good at it, they can be outcompeted by someone who is.)

[gusgus01]

Why would they check that the guards are in place when they can reject the claim after an accident happens because the guard wasn't in place?

Who regulates the insurers?

[BurningFrog]

Aren't all models vulnerable to "sometimes people in charge are idiots"?

[robertlagrant]

> Because sometimes people in charge are idiots, they ignore common sense

This ignores that regulators are also people, with the same traits, but with no vested interest in making anything work.

[harimau777]

Isn't #1 a downside? Regulators can impose penalties that sound like a big number but which corps just treat as a cost of doing business.

[mcguire]

1. If the penalties are not insanely high, it just becomes another cost of doing business issue.

2. If you look at IRBs, how much do you think Scott Alexander is going to be able to pay for liability insurance? The review model does have some advantages.

[pjscott]

Making it part of the cost of doing business is precisely the point -- you allow business to go on when it passes a cost/benefit test, and the business tries to minimize that cost by taking safety measures. There's a middle ground between "basically nonexistent" and "insanely high".