The criterion has two sequential conditions. First: does the activity impose a net wealth loss on external parties — those outside the transaction who bear cost without choosing to participate? This is measured as ΔW_ext < 0 across all capital kinds. If yes, second: is the brake cost-effective? The total cost of intervening — deadweight loss (the Harberger triangle), enforcement cost, and expected regulatory capture risk — must be less than the magnitude of the external wealth loss. Both conditions must pass before government has objective standing to act.