Wrapping up Fewer Rules, Better People

Overall, I enjoyed Barry Lam’s book Fewer Rules, Better People: The Case for Discretion. I was initially motivated to read the book because I had been thinking about two different ideas common to classical liberal and libertarians that seemed to be in tension with each other.

The first is the idea of dispersed nature of knowledge. Economists, and especially those influenced by the arguments of F. A. Hayek, are aware of the benefits of decentralized decision-making and the way it allows dispersed knowledge to be fully utilized. To the extent that expanding discretion increases the ability of dispersed knowledge to be harnessed according to the particulars of time and place, it would seem that libertarians should be friendly to expanding discretion.

On the other hand, there is also an argument within libertarians and classical liberal communities on the issue of rules vs discretion where people come down strongly in favor of rules. One example of this line of thought can be found in John Taylor’s book First Principles: Five Keys to Restoring America’s Prosperity, described by the (grumpy) economist John Cochran as being “fundamentally about rules vs. discretion, commitment vs. shooting from the hip, and more deeply about whether our economy and our society should be governed by rules, laws and institutions vs. trusting in the wisdom of men and women, given great power to run affairs as they see fit. The preference for rules is one of the most important lessons of modern macroeconomics.”

I initially thought I’d come away from Lam’s book with more arguments added to the “discretion” camp. Instead, reading the book and thinking through it’s arguments helped me realize I had been muddled in my thinking about whether Hayekian-style discretion based on dispersed knowledge runs contrary to Taylor-style rules. I know think the issue isn’t whether choices should be guided by rules or made by discretion – it’s at what level should rules or discretion ought to prevail.

Lam’s argument in favor of discretion is specifically aimed at what he calls “street-level bureaucrats,” something very analogous to F. A. Hayek’s “man on the spot.” And I came away from Lam’s book convinced that there is a scale for where discretion or rules should be favored, and this scale is strongest in favor of discretion for street-level, on the spot choices and moves toward behavior being more strongly rule-bound the more removed you are from street-level, on the spot decision making.

There are two primary reasons for this. The first reason is related to the importance of stability and predictability. The higher up you are in an organization as a decision-maker, the more people under your influence will need to be able to predict your behavior in order to be able to effectively plan their own. This makes it very important for your choices to be understandable, consistent, and predictable. This was well explained by co-blogger Jon Murphy in his excellent post The Reason of Rules, where he explains how President Trump’s constant leaps from one policy directive to another undermines the stability and predictability needed by millions of people to carry out their own plans. As he put it,

To move out of the classroom and into economics, we are seeing exactly this now with Donald Trump’s arbitrary tariff “policy” (“policy” is in quotes here because, since there is no consistency, it’s hard to call it policy by any reasonable sense of the word). Trump’s decrees on tariffs change day to day, sometimes even hour to hour. It’s quite impossible to predict what’s going to happen as there is no rhyme nor reason to these changes. Consequently, Americans and foreigners have no idea how to invest. As I write this, the stock market is down about 15% from the beginning of Trump’s 2nd term, with all of the decline during this “will he-won’t he” tariff nonsense.

Similarly, John Taylor is famous (among other things) for the Taylor Rule as a guide to monetary policy, and Scott Sumner advocates for a rule-based policy for targeting nominal GDP level growth. At the microeconomic level, individual agents should have wide discretion in how their carry out their activity. At the macroeconomic level, the case for policymakers and central bankers being bound by rules and restrained from engaging in activist discretion is much stronger.

The second reason why the case for discretion becomes stronger at the street-level compared to the macro level is when street-level decisions misfire, the damage is much smaller. As I wrote in another context about why decentralized decision-making is a good business practice, “when centralized decisions are mistaken, the mistake is imposed across the entire system. Bottom-up decisions could also be mistaken in any given instance, but they are also smaller in scope and not imposed system wide, allowing them to be weeded out through comparison and competition in a way that top-down decision making doesn’t allow.”

This simple distinction is also what led me to believe something I mentioned in my previous post about Lam’s book – I think he actually misclassified one of his examples of discretion when it should have been an example of rules crowding out discretion. That was the case of former San Francisco DA Chesa Boudin. What Boudin did was take discretion away from where it had previously been – at the level of the individual prosecutor – and moved it up, away from the street-level decision makers and up the bureaucratic ladder to a more centralized level. The bad use of discretion regarding a single case by an individual prosecutor does much less damage than the bad use of discretion by a district attorney making decisions affecting their entire jurisdiction.

Most of my objections to Lam’s book were rooted in how the distinction between law and legislation was absent. But that is perhaps a pretty niche nit to pick. And I did think some of his ideas needed to be expanded or explained more to account for that. One the other hand, to be fair, the book is part of the A Norton Short book series, which features books designed to be, well…short. Given that the book is by design rather compact, it was inevitable that some lines of inquiry couldn’t be fully explored. And that may also be a virtue of the book. Because there were aspects of the argument Lam didn’t cover, it caused me to spend more time pondering what points and counterpoints might have been made in that regard. This actually caused the book to inspire more thinking on my part than it might have otherwise.

Overall, I give the book high marks. But as is always the case, reading a review of any book is never a substitute for actually reading the book itself.