The Government Can Accomplish Anything, as Long as You are Willing to Give Up Everything

Tyler Cowen recently posted the following, under the title, "The Chinese late Qing dynasty approach to banking regulation":
Augmented by contracts permitting the enslavement of insiders’ wives and children, and their relative’s services as hostages, these governance mechanisms prevented insider fraud and propelled the banks to empire-wide dominance.
This is illustrative of my theory that the failure of many of our rules and regulations isn't a result of people not behaving rationally, as many argue, but is rather the result of our tolerance of freedom.  In a completely repressive society, where government may impose disproportional punishments, rules will be followed.

People make implicit calculations:  How likely is it I will be caught?  Can I live with the potential punishment?  In many cases, people make incorrect decisions not because they are not rational but because they don't understand complex systems or are uninformed about the consequences of their actions.  Where people have perfect information, and the government may impose highly disproportionate punishments, people will respond by conforming to the rules.

As a libertarian, I would never advise instituting the draconian measure above.  But I point to it as evidence for the zero sum game between regulation and freedom.  Perfectly regulating society requires disproportionate responses by government. The tension over policies can almost always be framed as a determination of whether a policy goal is compelling enough to require a disproportionate government action.