I’ve always wanted a cognitive bias named after me. There is probably already a name for this, but it’s hard to search for these things on Google.
So let’s take Japan, for example. Japan does quantitative easing.
- If it works, it is declared a success and they do more.
- If it doesn’t work, it means they need to do more.
Japan has done a lot of quantitative easing.
I’ll give you another one. Dodd-Frank was really meant to prevent bond traders from earning a million dollars. It has been successful, but as an unintended consequence, it has reduced liquidity. Now the SEC is regulating mutual funds even more to address the liquidity problems.
- If the regulations work, they are declared a success and they write more regulations.
- If they don’t work, it means they need to have more regulations.
You find many examples of these negative feedback loops in today’s markets. Policymakers will keep doing the same dumb stuff even though it makes the problem worse. It is like they are stuck in some recursive do-loop in Applesoft Basic.
I will call this The Dillian Loop.