I find the “psychopath” explanation for failure as unconvincing as the “great man” explanation for success.

Fact is that our world is extraordinarily complex, and serendipity (Providence to the believer) plays a large and perhaps dominant role in determining winners and losers. The big problem is not that our system disproportionately selects psychopaths as its leaders. The big problem is that leaders, after having been extraordinarily lucky to be selected to lead, begin to believe that luck had nothing to do with it. Rather, they believe it was something they did, some special gift they possess, some amazing action they took, that put them at the top of the pyramid.

In other words, psychopaths don’t become leaders so much as leaders become psychopaths.

This is another way of saying power tends to corrupt. If I am solely responsible for my success, then it is only a short step to believe that my actions are, ispo facto, successful. I feel free to do what ever I want, confident in the notion that it will be right. C’etat, c’est moi!

No regulation in the world can stop this from happening. It is a consequence of our flawed human nature. In fact, regulation makes things substantially worse. Regulators will always end up doing two things:

1. Increase risk-aversion. They’re there, after all, to keep failures from happening, or, if failure is unavoidable, they disguise it. If a company on their watch fails, they’ve failed in their mission. So the important information derived from failure is never learned or shared.

2. Increase concentration. Regulation is hard work. It is very difficult to regulate an industry composed of 100,000 firms. It’s much easier if there are only 10, and easiest if there’s only 1. That is why large firms love to be regulated; it increases the unit cost of smaller competitors much more than the large firm.

So, when failure eventually occurs, it is industry-wide. Like a driver who starts skidding and instinctively turns the wheel against the skid, the public reacts to the regulatory failure by calling for more regulation, thereby increasing the need for regulators. Nice gig.

The other problem with regulation is, intriguingly, related to Gödel’s Theorem. Gödel proved that a formal system cannot be consistent, axiomatic, and complete. The regulatory analogue to this theorem is the assertion that no regulatory system can be consistent, rule-based, and comprehensive.

- If the rules are applied consistently, there will be actions that can be legal but not intended by the regulations. This makes the regulations unsuccessful.

- If the regulatory regime is consistent and comprehensive, it cannot be rule based but must rely on the discretion of the regulator. This makes the regulators vulnerable to corruption.

- If a rule-based system catches all transgressions, it is only because the rules were applied inconsistently. This makes the regulatory regime appear unjust.

My sense is that we need to stop looking for the magic bullet of a closed-form solution to the nonlinearity of our world, and satisfy ourselves with the trial-and-error of Newton’s Method. After all, it’s not like cedarford’s steamboat operators made a profit when their ships exploded. Any operator with a survival instinct would realize more design margin was needed, and adjust accordingly, ASME or no ASME. Regulation didn’t make steamboats safer; self-interest did.

Maybe this is what Gödel realized before his day in court. If so, it was probably just as well he didn’t tell the judge.

L3