In all the years the U.S. society has tried to enact legislation to control conduct, we’ve never gotten it right. Instead, we’ve put in laws that are often overbearing and choking us, and at the same time, they haven’t protected people from harm. I invite you to look at the situation in a novel way, which will point to a more simple and elegant solution.

The Problem

Let’s take the case of the U.S. government trying to ensure we don’t create another economic recession similar to the one in 2008. The Dodd–Frank Act is a huge financial regulatory reform signed into law in 2010. It is heavily criticized as both insufficient to prevent another financial crisis or additional "bail outs" of financial institutions, and as having gone too far and unduly restricts the ability of banks and other financial institutions to successfully conduct business.

In reading the Wall Street Journal just one day last week, I saw some of the ridiculous results that this legislation is creating. The new Consumer Protection Financial Bureau, which was created by the Dodd-Frank Act, is set to begin reviewing non-bank financial institutions, yet they can’t articulate what they’ll be looking for in a way that makes sense to those who are being reviewed. Furthermore, the Volcker Rule, which is a section of the Dodd-Frank Act that aims to restrict banks’ ability to make bets with their own money but allows them to be made to hedge risk or facilitate customer trades, can’t be logically administered. The problem is that the only way to distinguish between the two types of bets is to analyze the traders’ intentions, which will require the judgment of a psychiatrist. This is crazy, and I haven’t even brought up the point of how much all of this is costing taxpayers. I question whether we need this legislation, at least to the degree that we’re taking it.

The Solution

Instead of this debilitating legislation, I propose that it’s enough to let the the natural consequences be felt by those responsible and be visible to everyone else. For example, Dick Fuld is a great deterrent for any leader considering making careless or immoral decisions with other people’s money. He was the Chairman and CEO of Lehman Brothers during the financial meltdown in 2008. He’s become one of the most widely blamed contributors to the meltdown, and is now generally described as an outcast that is despised and to be avoided. The HBO movie “Too Big to Fail” reports that prior to the meltdown, Fuld held a billion dollars of Lehman Brothers stock that fell to a new value of $56,000. The firm says he left as CEO in 2008, with no bonus or severance payments. All you need to do is read a snippet of a post-2008 account of his life, and you know you don’t want to end up like him. He’s a fallen and shaken man, and he’s the best incentive for leaders to be more responsible in their roles.

This concept of natural consequences is reflected in how businesses deal with employees who make careless or immoral decisions. Let’s say an employee does something detrimental, such as decides to take a three-hour lunch break which leaves their team short-handed during a critical period. Some businesses would react by imposing new rules and management monitoring activities that try to ensure nobody ever does this again. Perhaps they tell all employees that lunch has to be taken between noon and 1p, and they station management watchdogs at building entrances to catch the offenders. One Fortune 500 company that I worked for did exactly this, and this is analogous to our government’s approach enacted by the Dodd-Frank Act. In contrast, a more enlightened approach would be to use natural consequences and reprimand the one employee, get his team to articulate the negative impact that his actions created, make all of this visible, and expect that it won’t happen again. The former approach causes indignation toward overbearing management and an over-bloated management hierarchy to do all the supervising, whereas the latter approach causes a natural reaction of no more long lunch breaks.

What Needs to Change

So why aren’t we letting natural consequences be the deterrent to careless or immoral behavior? My explanation is likely to be controversial, yet worthy of consideration.

It seems we think we need an authority figure to keep us from doing bad things. This stems from a widespread belief that we’re inherently immoral and must be controlled. Many of us were taught we are naturally sinful and need an authoritarian God to keep us straight, and this leads us to believe we need an authoritarian government to keep us straight. Let’s recognize that this belief was instilled by zealots who wanted to solidify their power, and it’s time to let it go. Many businesses have realized that authoritarian management doesn’t create the best results. These days it would be much more difficult to find management watchdogs stationed at the entrance to buildings. Let’s take a cue from the business realm and put more trust in people and in natural consequences.

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