[FoRK] The Wrecking Crew - A Low, Dishonest Decade

Jeff Bone jbone at place.org
Tue Jan 19 18:45:43 PST 2010


To summarize the previous and underscore / expand on some of the  
points a bit...

One standard tack / trope these days, particularly among the anti- 
market "progressive" crowd, is to point at all the recent financial  
troubles and say "see, if left to their own devices all markets,  
merely due to the self-interested nature of its participants, will  
self-organize to magnify systemic risks and pass them along to  
unwitting third parties.  Therefore, we have to use the coercive force  
of government to ensure that these (implication:  bad) actors do not  
so self-organize."

Case in point, that's clearly not true;  the market that functioned  
best during the recent events is actually one with a very high degree  
of self-organization and the lowest degree of coercive influence  
through government regulation.  The progressives over-generalize, and  
those who reiterate the above --- be they politicians, talking heads,  
or those drawn with a very fine camelhair brush ;-) --- are showing  
their ignorance of the specifics of recent events while simultaneously  
disqualifying themselves from being taken seriously.

Now, just as clearly, those on the other side of the argument who  
simply cannot acknowledge that such buck-passing can be (and often,  
is) a problem are equally disconnected from reality.  But it's  
important for everyone who wants to take an informed position in this  
debate to realize the following:  that the engineered "mutually  
assured destruction" and web of risks in which originated all the  
recent trouble, in fact, was predicated on one particular assumption,  
one of moral hazard:  that somebody else, in particular some  
government entity or entities, would step in to avoid the doomsday  
scenario, should it come to pass.  Without that moral hazard, none of  
this would have occurred.  And guess what happened...  ;-)

So, final conclusions:  *government* regulation and moral hazard are  
two sides of the same coin, and that has to be managed very carefully  
by policy makers and would-be regulators.  There's a role for the  
government regulation, but beware the possible moral hazards that  
usually go along with it (and other unintended consequences as well.)   
And --- self-regulation via social norms, peer pressure, clearly  
articulated ethics and practices, and self-interest *can* (but do not  
always, or even necessarily usually) accomplish the same desired goals  
that progressives might seek (but often fail to achieve) through  
greater, coercive government regulation;   cf. the FX market as  
existence proof.


jb



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