Interesting article in yesterday’s Courier-Mail
by economist Nick Gruen, who takes up Amanda Vanstone’s complaint that
things like the ban on metal cutlery on aeroplanes are “to make people
feel better as opposed to actually achieving an outcome.”

extends the idea to apply to a great deal of financial and investment
regulation, such as the requirement to provide identification to open
bank accounts. It imposes substantial costs on society but doesn’t
really do much to protect us against dishonesty.

Gruen doesn’t offer a solution to this problem. In the case of airline
security, where the consequences of just one failure could be
catastrophic, it’s hard to know what to do. We can readily identify
things that don’t work – plastic cutlery, for example – but doing the
job properly isn’t a simple matter.

But with financial
regulation, and things like (topically enough) tax fraud, it’s not
necessary to detect crimes in advance. There’s no reason not to rely on
the model we use to prevent other crime: it’s called deterrence.
Would-be criminals are confronted with the likelihood that they will be
caught, prosecuted and sent to jail.

Imagine if we treated rape,
for example, the way we treat white collar crime. Everyone would have
to comply with a complex regulatory scheme, with forms, permits, etc,
before having s*x. The scheme would be administered by s*x bureaucrats
instead of police; courts would spend most of their time dealing with
technical breaches of the regulations rather than with actual rapists.
And offenders, instead of going to jail, would be hit with fines that
they were often able to pay with other people’s money.

So why
don’t we look at scrapping some of our useless regulations and treating
these fraudsters like real criminals? Rely on rules that are
substantive, not procedural; put serious resources into enforcing them;
and send culprits to jail. Regulation hasn’t been a success, so let’s
give deterrence a try.