How to make rules that work

Rules are a bit like exercise or a healthy diet. Most of us would prefer to live without yet we know that in the long run we really can’t. Part of what is undermining our confidence in our economic system is that we’re seeing one high profile case after another of rules that have been flaunted or broken. Think of the banks’ failure to follow the rules on foreclosures for instance. One way to restore confidence is to understand what makes rules work and incorporate those insights into the design of our new economic rules.

In that spirit, here are some ideas for what makes a good rule:

1. Must be based on sound principles
2. Should be clear, simple and consistent
3. Works best if it is intuitive
4. Should be designed to be self reinforcing
5. Ideally is enabling of activity not restrictive