Arden Rowell asks about how the economic dynamic approach would take into account tradeoffs as it manages change over time. The book eschews the term “tradeoff” in favor of a more limited concept, “collateral negative consequences.” (p. 70). This shift was intentional, meant to emphasize that society’s commitment to avoiding systemic risk should be just that, a commitment. Therefore, the primary question governments should ask in seeking to avoid systemic risk is which measures will do so effectively. (pp. 69-70). Democracies often make a concrete normative commitment to avoiding systemic risk, just as we make a commitment to free speech. The very idea of commitment means that we must take the steps needed to meet the commitment, even if they are costly to us. Therefore, I reject the concept of tradeoffs as a signal for some kind of optimization exercise that ignores normative commitments in favor of a more subtle concept of addressing collateral negative consequences that seeks to take certain qualitative detriments of actions addressing systemic risk into account without weakening our commitment to this goal.
The idea of commitment implies that the question of how much investment should we make to avoid systemic risk is not the right question to ask. It’s a little like asking how much investment should we make in our marriage. It’s not unbounded, but basically we try to do what is necessary to make the marriage work.
Having said that, the book, as Arden notes, does not eschew consideration of collateral negative consequences. Here are some of the principles stated in the book:
- If one has two efficacious means of avoiding a systemic risk, choose one avoiding negative collateral consequences if possible. (p. 70)
- Use narrow exceptions to legal rules where possible to avoid collateral negative consequences when implementing an efficacious means of avoiding systemic risk. (p. 71)
- If all efficacious means have serious negative collateral consequences, make value choices about which collateral consequences we most wish to avoid in choosing a set of efficacious means. (p. 70)
- If necessary to avoid a systemic risk, one must forego an economic opportunity, that’s ok. If we avoid systemic risks, new opportunities will arise. (p. 72).
- Avoid measures that would not leave open a reasonably robust set of economic opportunities. (p. 72).
- If the only measure avoiding systemic risk creates a systemic risk, avoid the systemic risk most likely to arise. (p. 72). Read More