The Blunt Instrument of Caution

Let us imagine that this columnist has invented a remarkable device: a speed limiter for cars which deducts 10 mph from the speed at which you wish to drive. Obviously, it is no use if it merely deducts speed from your aim, or you would aim for 40 mph with the intention of achieving 30mph. It has to telepathically ascertain your true intention, and deduct the speed from that. Would this be a good thing? Well, it is true that if average speeds were reduced, the roads would be safer. But a blunt instrument such as this – which reduces the speed of people who are already driving too slowly, as well as those who are driving too fast – is probably not the best way to achieve greater safety.

What, then, if we made the limiter compulsory for people who have recently caused accidents by driving too fast? In both civil liberties terms, and road safety terms, this seems much better. People with a record of dangerously driving too fast can be required to drive more slowly without unfairly limiting their freedom and these are the very people who would be safer if they were driving more slowly. It remains a rather blunt instrument, since speed is only one component of risk, but it is a component that is still worth addressing.

But such a measure reckons without human nature. Someone who has recently been involved in a life-threatening accident caused by his own speeding is likely to become, for the short term at least, a more cautious driver. Let us imagine such a person is driving in an area where the optimum speed is 25mph. Before the accident, our driver might have driven at 35 or 40mph, risking lives. But having been recently scared by a serious accident, our driver is now over cautious, and aiming at 20mph. The speed limiter cuts his speed to 10mph. Other drivers become frustrated, waiting for an opportunity to overtake, and eventually someone swings out dangerously and causes an accident.

Just as generals prepare to fight the last war, drivers seek to avoid their last accident. It is human nature. The speed limiter therefore makes things worse, not better.

Markets are made up of humans, too, just like generals and drivers. Banks, having been badly burned by taking too many risks and the uncritical acceptance of innovative financial techniques are currently being too cautious and risk averse. Regulations designed to make them more cautious and risk averse are therefore like our speed limiter: trying to solve the last problem, not the next one, and therefore pushing in the wrong direction.

Perhaps financial markets do need such regulation, to tame the excesses of risk-taking, but they do not need them now. They are more likely to need them in five years or so. The aversion to risk taking is making it harder for small businesses to raise much needed capital and for home buyers to raise a mortgage. Regulations which exacerbate the natural caution of bankers – the obvious human reaction to errors of the past – are making this situation worse, and slowing the world’s economic recovery.

If anything, in the short term, financial markets would probably benefit from regulations designed to penalize caution and incentivize risks. Such measures would need to be wound down, though, as markets regain confidence.

Article provided by Quentin Langley
Lecturer in PR and Political Communications,
School of Journalism, Cardiff University

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