Why is it that folks don't start from Arnolds position and then discuss other alternatives?
Is it not obvious that regulations move slowly, and markets move more quickly? Is it not obvious that most (all) of the time, any change in regulations is game-able by someone who is smarter than the regulators?
Of course this is true of all regulatory systems...and it's why Arnold presents a compelling case for spirit of the law regulation...which has it's own problems.
It's also an awful compelling case for generic libertarianism. Most regulations have (a) massive unintended consequences, and (b) are gamed by the people they are supposed to regulate. And that's before we talk about the fact (c) that MOST regulations are built in order to benefit the large lobbying interests in the industries being regulated, and (d) that MOST regulatory agencies suffer from almost complete regulatory capture.
Perhaps folks don't understand competition and multi-step games?