If you know enough, you are biased. If you are independent, you are ignorant.

A great post, Regulation? Great Idea. For Someone Else by Megan McArdle.

So the Obama administration is proposing to change the rules about which employees are exempt from overtime, more than doubling the salary threshold to over $50,000 a year. This is probably not going to lead to that much extra money in workers' pockets if it goes into effect. What it is going to lead to is a huge amount of compliance hassle, as employers have to start tracking the work hours of previously exempt employees.

Meanwhile, those workers can expect to find their productivity much more strictly monitored in order to force their work into the 40-hour limit. If you make $50,000 a year and you're used to being able to duck out for a coffee or make personal phone calls from work because you can always come in a few minutes early or stay a few minutes late, you should probably be prepared for the possibility that this will be curtailed.

This is another one of those instances where politicians are making meaningless gestures to appear to be doing something but they are too ignorant of the real world to realize the negative affects their supposedly beneficial and harmless regulation will have.

I've seen others draw that same line on regulation time and again. It's a very human tendency, to think that everyone else needs to be regulated more tightly but you're doing just fine, thank you. I once had a nice liberal boyfriend who worked for Morgan Stanley (yes, this is a thing that exists), and he thought that everyone from airlines to drug companies needed much more government supervision to keep them from behaving so appallingly. The only industry that did not require more supervision --and indeed, was in imminent danger of being choked by government regulation that would create massive, costly and counterproductive disruptions -- was of course the finance industry. This was in 2002.

She's right, it is Gell-Mann Amnesia writ large.

The list goes on and on; in fact, I cannot recall ever speaking to anyone, in any industry, who thought that their own personal jobs would be improved with a lot of new regulations and some powerful bureaucrats to stand over them, threatening them with fines every time they stepped out of line. To the contrary, these people could wax eloquent, often very convincingly, about the ways in which new regulations would distort their business, making things worse for both them and their customers.

It's a version of Gell-Mann amnesia: What we see so clearly about the things we know, we immediately forget when we consider things at a farther distance.

McArdle concludes:

I can see why overtime law is a terrible fit for my own line of work. It's harder for me to apply the same test when thinking about someone else's job. I have a vague idea of what it would be like to manage a Chipotle, in that I can probably specify the major duties involved, like ordering stuff and training workers. But I have no idea what that manager's biggest day-to-day challenge is, what it takes to do the job well, what he enjoys about his work and what he doesn't, where she's hoping to get and what she's willing to do to get there.

You know who knows that? The manager and the manager's boss: the people who are currently agreeing to the terms of employment. The administration is proposing to overrule their judgment and force overtime restrictions onto them.

In the comments section, her readers point out the other major harm of burdensome regulation - that it benefits industry insiders and harms new entrants, in other words, it reduces competition and choice.

McArdle does not draw attention to it but there is an underlying paradox which explains why policy and regulatory interventions almost never yield the benefits promised and almost always generate harms and costs not identified at the beginning.

Take two stick figure parties, the Bureaucrat who regulates and the Businessman who creates. Everyone can agree that there should be some minimal level of regulation to reduce uncertainty in the system. Everyone can agree in advance on simple things like basic hygiene in restaurants, simple employment expectations, etc. But once you have those regulations, where is the limiting principle? No one can agree.

Everyone can probably agree on the regulation forbidding rat faeces in fresh-baked croissants. But what about insect fragments in baking flour. There are regulations covering that at the retail store level. Should a restaurant be subject to the same level as that covering general consumption, say 1 part per 100,000? Should they serve to a higher standard such as 1 part per million? Or higher yet? You can craft all sorts of arguments pro and con for each different proposed level. But what is the philosophical basis for when the regulatory power is counter-productive? There is none.

Aside from no limiting principle, there is an additional fundamental governance issue which McArdle hints at. "But I have no idea what that manager's biggest day-to-day challenge is . . . You know who knows that? The manager and the manager's boss."

Everyone likely can agree that we want informed regulation making. Don't make a new regulation without knowing both the pros and the cons, who wins and who loses and by how much. Can any generic Bureaucrat have sufficient Domain Knowledge to meaningfully craft a regulation to those standards? Almost never. As McArdle indicates, only the people actually involved in the activity to be regulated have enough Domain Knowledge to understand the different trade-offs. And of course they are biased in their own interests so you can't ask them to write the regulations to achieve the stated goal. Perhaps instead you have the Bureaucrat shadow the Businessman for some period of time to ensure they understand the full range of intricacies, complexities and trade-offs? Or perhaps, instead, you hire people from the industry who already have that knowledge? Can you say regulatory capture?

Hence the paradox. If you know the industry well enough to write regulations, you likely are so close to the industry as to be serving more their needs than the public's needs (this was a big issue for the Bureau of Land Management in the 2000s with regard to their land leasing practices in the energy sector). If you are fully independent of the industry, you almost certainly do not know enough to write meaningful and useful regulations. Knowledge creates bias, independence creates bad regulation.