The nirvana fallacy is the logical error of comparing actual things with unrealistic, idealized alternatives. It can also refer to the tendency to assume that there is a perfect solution to a particular problem.
I thought of this as I read over the comments on my blog entry on principles-based regulation.
I think of the issue as follows: should we be more inclined to regulate financial institutions using principles or using rules?
Perhaps we would be better off with a completely free market in banking. However, I think that falls within the realm of "unrealistic, idealized alternatives." When you find a developed country in the 21st century with free-market banking, let me know.
Perhaps regulators and judges would apply principles-based badly. However, there is an implicit assumption that there is a "perfect solution" of some other sort. Again, when you find it, let me know.
Some commenters argued that we only have the rule of law when all rules are written explicitly, with no scope for interpretation. In that case, the common-law tradition fails to live up to their nirvana.
On a different subject, if I were Mitt Romney, I would be posing the issue of his background as follows: does prosperity tend to increase more from capitalism or from community organizing? Put in those terms, I do not see how he can lose. However, if the debate is about whether capitalism is nirvana, I do not see how he can win.
I could argue that the entire election this year hinges on the ability of anti-capitalists to employ the nirvana fallacy. I would not bet against them.