Tuesday, October 29, 2019
John R. Brooks (Georgetown) presented Built to Fail: Risk and Robustness in Policymaking at Boston University yesterday as part of its Tax Policy Workshop Series hosted by David Walker:
Policymaking is an exercise in decision-making under uncertainty‹legislators and other policymakers frequently must make a best guess about likely outcomes when deciding whether or not to engage in a particular policy, and any policy comes with some risk of failure. A number of theoretical and practical approaches to that exercise have developed over the years, attempting to give policymakers reasoned decision procedures for managing risk, yet we seem to again and again implement policies that result in catastrophic outcomes, such as the Iraq War, the regulatory choices that led to the financial crisis, the Chicago School approach to antitrust, and the tax reforms of the 1980s. This Article argues that large downside risks need to be taken more seriously by policymakers, and need to be more central to the scholarship on policy decision-making. In particular, this Article examines four theoretical approaches to decision-making under uncertainty‹cost-benefit analysis, incrementalism, the precautionary principle, and optimal search‹and argues that they can be reconciled by combining an experimentalist approach to relatively small risks with a special weight and high degree of caution for large downside risks.
The Article also considers two particular types of downside risk in policy-making, bad outcomes‹the chance of the policy leading to a catastrophic outcome‹and system failure‹the chance of the policy itself collapsing because of poor design or a lack of resilience against external pressure or changed circumstances. These risks and the Article¹s theoretical framing are then applied especially to the question of tax reform, and also to examine how features of the legislative process promote (or hinder) good risk management.