Please Note: Blog posts are not selected, edited or screened by Seeking Alpha editors.

Of Good and Bad Regulation

Recently, I've come out for, and against regulation. One may reasonably wonder whether I'm picking my issues or talking out of both sides of my mouth. I'll try to clarify this by defining "good" and "bad" regulation--from a libertarian's point of view.

Regulation can be broken down into "positive" and "negative" regulation. "Positive" regulation is a mandate: you must do this or that. "Negative" regulation is preventive. "You may not do this or that." Think of it as a traffic light or speed limit. In my view, "positive" regulation is (mostly) bad, while "negative" regulation is (mostly) good.

I've been (mostly) against the recent health care reform because it represents "positive" regulation. "You must buy health insurance in relatively specific amounts." Once you open that window, it opens the way for mandating some treatments and denying others, and generally restricting provider choice. I was for certain limited reforms like having health companies insure all patients (with the government reinsuring the "hard" cases like pre-existing conditions).

On the other hand, the spirit of "negative" regulation goes back to the Hippocratic Oath," do no harm." Ben Graham would have agreed vis-a-vis investing:  "Rule 1, don't lose money. Rule 2, never forget Rule 1.

Basically, negative regulation is preventive. The same is true in finance. There ought to be limits on leverage, that prevent financial "accidents" the way that speed limits and traffic lights prevent a lot of car accidents, and resulting fatalities. There should be rules against banks arbitrarily raising interest rates and changing terms of credit card agreements, without an economic reason, or out of proportion thereto.  In short, we should be telling banks, "you may make money, but you do not have a license to print money."

If bankers can do the above-mentioned things, it is a signal that the market has broken down, and that they are in a position to collect economic rents.

regulation is a way of preventing them from doing so.