#190 Hubris Leads to Downfall

<p><strong>Global Policy Watch #1: FinTech Manoeuvres</strong></p><p><em>Insights on global issues relevant to India</em></p><p><em>— RSJ</em></p><p>One of our favourite topics to talk about around here is regulations. We aren’t dogmatic about things. But the one principle that comes close to being a dogma for us is our belief in spontaneous order. The world is a complex interplay of many economic and social networks. Don’t try to force an order on it. Let the spontaneous, uncoordinated actions of the millions run their course. Some order will emerge from it. There might be occasional ‘disorder’ but inbuilt into such systems is an autocorrecting mechanism which will kick in. This is better than some powerful entity (like the State) trying to force order because it thinks it knows best. No one really can be a <a target="_blank" href="https://www.stsci.edu/~lbradley/seminar/laplace.html">Laplace’s demon</a>. The top-down forcing of an order will make things worse. </p><p>That said, we aren’t libertarians by any stretch. The State must intervene when there’s a market failure. And more than any other sector, I believe financial services need regulation because of two obvious market failures endemic to them. </p><p>One, there’s a serious information asymmetry between the supplier of these products and services, and their customers. The products get more complex over time as suppliers look for additional arbitrage to make higher income, and customers can only understand so much of what’s often non-intuitive. I mean, compounding as a concept is a leap for most people; figuring out more complex instruments ain’t going to be easy. Two, the market power and dominance gets built up really fast in this sector. With it comes the risk of a contagion or the spectre of ‘too big to fail’. All of these leads to misallocating of capital that’s worse than most state interventions. So, I tend to look at financial regulations somewhat more benignly than, say, regulating <a target="_blank" href="https://publicpolicy.substack.com/p/189-