Or, Social Constraints Outweigh Contractual Constraints
While there is a great deal to be said in favor of the modern, legalistic phenomena of interaction based on written contract, as Francis Fukuyama argues in his book, Trust, and as Clay Skirky demonstrates empirically in this video, unwritten social and cultural constraints are far more effective, in terms of cost and otherwise.
As a fore-warning to interventionists, the data presented in the video suggest that once a cultural institution is disrupted by new, legalistic impediments, the original, more optimal cultural interactions do not immediately re-emerge even if the new legalistic intervention is removed. Indeed, all the king's horses and all the king's men could not put humpty dumpty together again. This may be an empirical indication of Ludwig von Mises' claim that one intervention inevitably leads to another: that there is no "middle road."
Or, more succinctly, the middle of the road policy always leads to socialism. Particularly important to realize, it seems, is that in today's impatient world, even if we win a deregulation victory, it takes a great deal of time for the former cultural or societal constraints that governed a particular arrangement to re-assert themselves, or perhaps be re-learnt, after their disruption by government policy. In the case of the example in the video, it is a shame the researchers did not prolong the study to see if, or what type of, new cultural or societal arrangements would eventually come to an equilibrium out of a post-deregulation world. How long is the half-life of a regulation?
During the intervening period of time after deregulation, similar in a way for society it seems as personal withdrawal symptoms, there would be an immediate call by state-intellectuals to return to the less effective policy in order to avoid the costs of re-imposing a higher-level optimal, cultural or societal equilibrium. The real lesson, then, should be clear: do not intervene in the first place. The social planner is not smarter than those who originally introduced the behavior the planner intends to modify. Indeed, the modification will not only lead to a less optimal outcome, but even once state-imposed incentives are withdrawn after an honest recognition of their ineffectual nature, the original optimal social equilibrium does not immediately return.
The ensuing, seemingly relatively chaotic correction period is then used as an excuse to re-impose regulation, and even expand it in order to correct for the most immediately recognizable unintended consequences of the intervention. No doubt, such increased intervention will only further undue the optimal, social equilibrium. This continual one step forward, two steps back process lends itself ultimately to a crescendo of authoritarianism. Such crescendos either doom humans to a subhuman life, as in the case of North Korea, or lead to the total destruction of society, like in Nazi Germany, with the hope that the naturally occurring optimal cultural institutions will be reborn out of the rubble.
In the cases where we have disturbed the natural equilibrium of society by regulation, let us pay the price for deregulation now, rather than consistently uping the ante and going for broke. Click here for a great interview about how this dynamic plays out in the monetary system.