Contemplation of Eric Posner’s and Glen Weyl’s proposal that government create an F.D.A. to regulate financial innovations (mentioned here), I’m led to ask a question that I’m sure has been asked by others – and asked more incisively and more eloquently than I can ask it. But I ask anyway:
Why is it still regarded as scientifically valid to propose a government program (such as the one proposed by Posner and Weyl) whose success requires that the administrators who carry out the program possess and act on a degree of other-regarding motives and unbiased system-wide knowledge that, were such motives and knowledge assumed to guide the actions of people in the private sector, would immediately and properly be dismissed as too unrealistic to take seriously?
Suppose that instead of proposing a financial F.D.A., Posner and Weyl had offered the following proposal: “We propose that all investors be less selfish, as well as that they acquire, intelligently and objectively process, and use for the public good more knowledge of the system-wide consequences of each of their financial transactions. Implementation of our proposal will improve the operation of financial markets.”
The hypothetical proposal offered in the previous paragraph is, obviously, absurd. Had Posner and Weyl (or anyone else) offered it, they would be properly ridiculed as not doing serious scholarship. So, given this fact, why is their actual proposal treated seriously?