Saturday, July 6, 2013
Glen Weyl and Eric Posner have proposed an agency to license financial Innovation, to be modeled on the Food & Drug Administration:
We propose that when firms invent new financial products, they be forbidden to sell them until they receive approval from a government agency designed along the lines of the FDA, which screens pharmaceutical innovations. The agency would approve financial products if they satisfy a test for social utility that focuses on whether the product will likely be used more often for insurance than for gambling. Other factors may be addressed if the answer is ambiguous.
In health care regulation, the government's goals are relatively clear: raise quality, cut costs, and increase access. These goals are often in tension, but they provide guidance for policymakers. Weyl and Posner note three similarities between finance and drug regulation:
1) Expertise is key to good decisionmaking.
2) There is delayed and uncertain feedback on the wisdom of decisionmaking.
3) Decisions have high stakes.
This is a very interesting paper overall. However, I'd say the fundamental discontinuity is that while finance orders capital allocation for an entire society, health is merely one of many sectors ordered by finance. That means ethical and social considerations should be far greater in the finance sector than in health. Presently, nothing seems to be further from the case.