Friday, November 28, 2003

The purpose of regulation

First we need to understand the purpose of the underlying system. There is its stated or implied purpose, for instance the provision of banking services. Then there is the possibility of analysis to understand whether "the provision of service" is a better or worse description of the purpose than for instance "getting as much money out of customers as is possible in a given time". If the POSIWID analysis indicates something of the latter then regulation to balance the power equation between the banks and their customers is in order, in principle. It does not seem unreasonable to ask the banks to fulfill their freely made service promises. Government should intervene between power and money. (Of the POSIWID of government perhaps more later)

However, Richard's point is that we cannot take for granted the purpose of regulation any more than we can take for granted the the purpose of the banks. The POSIWID of regulation may on analysis be seen to be to appear to police while actually allowing free rein. Regulation is regulation of the banking system so it is the systemic effect of regulation, possibly along the lines Richard suggests that will determine the actual POSIWID.

Given that the economic effect of regulation at the point of application is to act as a tax on users of the service (both as real taxes and as incremental cost on products purshased) then the POSIWID of the system is of political importance. Why would I consent to pay for a system of regulation that made my situation as a consumer worse?

Of course there are other modes of regulation that work differently to the implied systems of rules, checks and balances above. Consumer education is a form of regulation as is legal support for consumers. The first point though is to move beyond the assumption that the purpose of the system is what it says on the can.

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