Freedom to swim in Holland

In at least one small way, our friends at The Defining Tension corporate law blog live in a freer country than I do.

On a serious note, the Economist blog post to which I linked has a nice discussion of the difference between sensible and nonsensical regulation:

I am perfectly capable of assessing for myself the risks of swimming across a small pond in Massachusetts, or the risks of swimming in the Amstel when lots of boat traffic is around. I don't need regulations to protect me; I have common sense. What I can't assess for myself is the risk that the water is contaminated by raw sewage. For that, I need a regulatory agency that stops households and businesses from polluting the river. To generalise: for risks I can assess myself, I don't want regulations that prevent me from doing as I please just because I might end up suing the government. For risks I can't assess myself, I do want regulations that give me the confidence to do as I please. One kind of regulation stops me from swimming in a pond in Massachusetts. The other kind lets me swim in a river in the Netherlands. One kind of regulation makes me less free. The other kind makes me freer.

I'm not saying the Netherlands has struck the right balance, overall, between freedom and regulation. On the commercial side, the Dutch feel themselves to be heavily over-regulated. But I do think the comparison helps to identify how regulation and freedom interact.

I would put the difference between the two types of regulation slightly differently. I believe the case for regulation is strong only when there is a demonstrable market failure that cannot be fixed through private ordering. Pollution is a good example. We have an extenality problem, because the polluter is able to reduce its costs by externalizing part of them onto society by dumping pollutants into the environment. We have a collective action problem, which makes the cost of private ordering very high. We have a commons problem, which also raises the cost of private ordering. It's hard to see how deciding to swim a particular pond raises those sort of issues.