The importance of regulatory humility

[Commentary] The illusion that we know more than we really do has frightening implications for regulators who seem to be asked to make ever more detailed assessments and decisions.

As Federal Trade Commission member Maureen Ohlhausen recently wrote, government officials “should resist the urge to simplify, make every effort to tolerate complexity, and develop institutions that are robust in the face of complex and rapidly changing phenomena. Unfortunately, regulation too often is a procrustean bed for the regulated industry, due to the limits of regulators’ knowledge and foresight.” “Procrustean bed” is a reference to Greek mythology, in which Procrustes physically forced his guests to fit his bed by stretching those who were short and amputating limbs from those who were tall.

Where have such detailed regulatory decisions been showing up?

• FCC commissioners have decided that they know more about the value of bandwidth than do customers, and the cost of bandwidth than do ISPs, determining that customers should have 25 Mbps down and 3 Mbps up.
• Some FCC commissioners, the President, and certain Members of Congress believe that they know innovation would suffer if ISPs offered transit options to content providers. They have therefore determined such innovation belongs outside of networks.
• The government of Australia once concluded that its citizens needed a government-funded fiber optic network, a decision that has been shown to be both ill-conceived and costly.
• FCC Chairman Wheeler believes that he knows better than local school officials how much they should be spending on broadband.

What should be done? Professor George Yarrow of Oxford University recommends getting back to the original Scottish solution. That is, we should limit the role of government to providing frameworks, not planning outcomes. He also warns that regulatory institutions, like all organizations, are generally blind to their own biases. Because the effects of their biases are visited upon markets broadly, he argues that regulators should devote energy to effecting humility rather than imposing decisions.

[Jamison is the director and Gunter Professor of the Public Utility Research Center at the University of Florida]