Something must be done.
This is something.
Therefore, this must be done.

Robin Hanson quotes Caplan in Regulation Ratchet.

[I]t seems biased to call for more regulation given a certain cue, without calling for less regulation given some other cue. If we all agreed we have too little regulation, then we should just add more regardless of whether news is good or bad.

This bias would seem to produce a regulation ratchet: increased regulation after bad times, but little change after good times. Of course this by itself doesn't say if we have too much or not enough regulation; it just says the time trend is wrong.

Perhaps this regulation ratchet arises from a hindsight bias, i.e., an illusion that regulators could have foreseen current crises, combined with a tendency to more often think "something must be done" in bad times, combined with Caplan's fallacy . . .

The regulation ratchet is bad at every level and time scale, and always results in collapse since it strangles society. Unfortunately, the chaos following collapse provides fertile breeding ground for regulators, and so another ratchet cycle begins.

The true error is the false assumption that "something must be done", since it is seldom the case that anything can be done that actually solves the apparent difficulty. Things can be done that make the symptoms drift, but that's whacking your thumb with a hammer to cure a headache. The greater pain in the thumb is a distraction that makes the headache seem irrelevant.

One way to reduce the harmful effects of regulation is to diversify. The fallacy could be reformulated as:

Something must be done.
There are a few things that might help
Therefore, do them all.

This not only avoids Caplan's fallacy, it also evades panacea traps.

Institutions for managing . . .[social–ecological systems (SESs)] must address multiple timescales of ecological change, as well as features of the social community in which the ecosystem policy problem is embedded. Response of the SES to each candidate institution must be modeled and treated as a stochastic process with unknown parameters to be estimated. A fundamental challenge is to design institutions that are not vulnerable to capture by subsets of the community that selforganize to direct the institution against the overall social interest. In a world of episodic structural change, such as SESs, adaptive learning can lock in to a single institution, model, or parameter estimate. Policy diversification, leading to escape from panacea traps, can come from monitoring indicators of episodic change on slow timescales, minimax regret decision making, active experimentation to accelerate model identification, mechanisms for broadening the set of models or institutions under consideration, and processes for discovery of new institutions and technologies for ecosystem management. It is difficult to take all of these factors into account, but the discipline that comes with the attempt to model the coupled social– ecological dynamics forces policy makers to confront all conceivable responses. This process helps induce the modesty needed to avoid panacea traps while supporting systematic effort to improve resource management in the public interest.

This seems to be sound advice for evading panacea traps, and even seems personally virtuous. Those who grasp and apply this thinking are improved humans. But it just makes the regulation ratchet more subtle since there is no proposed mechanism for deregulation. It may take more time to strangle society, but the result is the same in the end.

The special interest groups that "selforganize to direct the institution against the overall social interest" will complain that they need predictability to formulate their long term plans and invest in systems that exploit regulation. They don't want temporary regulation with sunset provisions, or periodic zeroing out of regulatory schemes to loosen the ratchet. Diversification will provide opportunities for diverse special interests to all have a go at exploiting the system for personal gain but against the overall social interest. The hogs are smaller but more numerous, and society is still turned into a pig parlor in the end.

It's a radical idea, but I suggest that we need approaches to policy formulation that avoid all of these dilemmas - panacea traps, Caplan's fallacy, and Hanson's regulation ratchet.