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Monday, April 05, 2010

The Great White Shark as a Model for Financial Regulation

Paul Krugman made an analogy between financial regulation and military tactics circa 100 BC. He said that the Dodd bill is like a Hellenic phalanx, designed to work optimally given optimal leadership, and what we need is something like a Roman, legion designed to get the job done with suboptimal leadership.

Nah. What we need is a Great White Shark. Notably great white sharks are very effective at getting the job done and have very very small brains given their size (even compared to other sharks skates and rays). This is odd, since they specialize in eating seals and sea lions as do Orcas which have huge gigantic brains and are spectacularly smart.

How odd. I think the explanation is simple. Great White Sharks don't stick to warm water (notably seals and sea lions don't). Nerve's work slowly when cool. A reflective shark would be lost in thought while the prey swam away. Orcas are warm blooded and can think fast enough even when its freazing.

There is a very general pattern that cold blooded animals have tiny brains given body size (low brainweight^3/weight^2). This is because the optimal brain is different if body temperature is constant or variable. A simple brain works better if it is often slowed by coolness.

What Krugman meant to say is that financial regulation should be like a great white shark and not like an Orca. Not optimal assuming the brain is working at maximum speed but optimal assuming it will be numb part of the time.

I mean he says we need financial regulation with teeth and which uses them reflexively.

1 comment:

Noni Mausa said...


People (especially young people) often complain about bureaucracies -- the slow, stubborn, automatic workings of overpaid public servants. But they are the vital organs of the state, its livers and kidneys, and you don't want nimble creativity in vital organs. You want organs that will keep plugging along converting starch to glucose without paying any attention to current events.

Thanks for this.