There are essentially two types of economic regulation. Blacklist regulation and whitelist regulation. Whitelist regulation works like an elevator, or more accu

There are essentially two types of economic regulation. Blacklist regulation and whitelist regulation. Whitelist regulation works like an elevator, or more accurately, an airplane. You can reason over it, and speculate over the effects of adding new items to the list. It is a constrained problem. The blacklist style results in more innovation, but also more chaos. Hayek may not have realized this himself, but he was certainly talking about the blacklist style when he said this. In further support of this idea, the repeal of Glass-Steagal, which precipitated the 2008 crisis, essentially moved the investment banking system from a whitelist to a blacklist, and the result of this, was a bunch of insurance companies maximizing their correlated risk through a convoluted series of loopholes because that is always the goal of a limited liability enterprise. This was the event that made the equations invalid.