Rules, Principles and Regulators

James Surowiecki has an interesting piece in the New Yorker this week on the difference between "rules-based" and "principles-based" approaches to regulation. (It includes a terrific analogy: American football is rules-based, while soccer is principles-based.)

Along the way, Surowiecki makes a sobering argument about the federal government's recent performance in the regulatory arena:

In recent years, regulatory failures have occurred less because of bad rules than because of bad regulators. This is partly because Congress, following the Bush Administration’s lead, has underfunded regulatory agencies. The Consumer Products Safety Commission, for instance, has the authority to regulate toys from China but is hard pressed to do so, having only half as many employees as it had in 1980. To make things worse, many regulators have been captured by the industries they’re regulating, or are hostile to the regulations they’re responsible for enforcing. The recently publicized maintenance problems at Southwest Airlines were discovered years ago, but supervisors discouraged inspectors from cracking down. Federal bank regulators had the power to discover and curb the fraud and deception that helped fuel the subprime boom, but they were apparently oblivious. In all these cases, the rules were fineâ€"it was the regulators that were the problem.

(On a side note, the vaunted New Yorker fact-checking operation isn't what it once was, apparently. The correct name of the agency referenced above is the Consumer Product Safety Commission.)