• Bureaucrats cannot 'correct' market failure, even if they wished to do so, because they lack the information to know what the outcome of the market process would have been had the so-called 'failure' not existed.A neat analysis that makes the FSA's mission claim look utterly asinine:
• Bureaucrats will act in their own best interests, taking courses of action that will lead to promotion and advancement. They are likely to wish to avoid scandal, thus becoming risk-averse, so they may regulate to reduce risks to a greater extent than consumers desire. They will also wish to increase the size of their regulatory bureau.
• Electors in general have no interest in being perfectly informed about political issues because the probability of an individual’s vote impacting on the result of an election is tiny.
• Because of this, there are information asymmetries between regulatory bureaus and those to whom they are ultimately accountable: electors. Thus electors are at a relative disadvantage when assessing the merits of proposed regulations.
• Where the benefits of government action are concentrated among particular voter groups, or institutions or companies, such groups have an incentive to lobby for increased regulatory protection. Where the cost of such regulation is dispersed among voters the losers will have
no incentive to lobby to oppose increased regulation because the expected cost of lobbying to the individual voter will be large relative to the expected benefit.
• Politicians will, other things being equal, respond to the preferences of the 'median voter' rather than act to create regulatory institutions that might address genuine problems of market failure.
‘In meeting our objectives in a manner consistent with the principles of good regulation, we have adopted a regulatory approach based on correcting market failure...There are, however, numerous cases where unregulated financial markets will not achieve the best outcome due to some form of market failure, making action on our part necessary.’Is that the hiss of exploding steam I hear?