[This exploration into the theory of regulation was inspired by the role of the mixed economy in the rise and fall of Enron. The analysis applies to many current issues, such as the negative environmental effects of the supply/demand for used batteries, the lead story in today’s New York Times.]
Political economists have long recognized the challenge of getting regulation right in a mixed economy.
“A scheme of state interference for the attainment of some social or economic benefit,” stated Hubert Smith back in 1887, “will in general succeed or fail according as it is able or unable to cause a change in the nature, habits, and disposition of those whom it affects.”
A century later, regulatory economist Sanford Ikeda reached a like conclusion:
Interventionism is really a process of entrepreneurial adjustments in both the private and public sectors, where these adjustments tend to be both unanticipated and undesirable (from the viewpoint of the interveners) owing to radical ignorance, complexity, and dispersed information.