..Since September, I've been to a hell of a lot of panels, discussions, and interviews about the crisis. Almost all of them feature prominent calls for tougher regulation by certified Very Smart Economists. When pressed upon the details of this regulation, however, they tend to get rather vague. "We need a stronger regulator". Okay, and what exactly should he be empowered to do? "The regulators need to watch the banks more closely." Okay, yes, but what will they be watching for? "The regulators need much more power to keep the banks from taking risk." Yes, yes, thank you, Dr. Insight, and what specifically is the regulator going to do with this power?
Further deponent sayeth not.
These are not journalists, mind you; these are PhD economists with a specialty in finance--the class of people whom we expect to regulate these banks. The further left they get, the more strident they are in calls for regulation. But they seem unable to come up with any actual, specific things that the regulators should do except . . . keep the banks from levering up to much and taking too much risk. How much, exactly, is too much? Why, enough that the banks start to fail, of course!...
meganmcardle.theatlantic.com
@Megan
"...no one understands what's going on well enough to guarantee the results of their activity."
Congratulations - You just stated, as have Ludig von Mises, F.A. Hayek, Murray Rothbard, and others before you, exactly why centrally-planned markets cannot work - Ever. There's no way any central authority can have all the information necessary at any given time to take an action and guarantee an outcome. Markets aren't made up of computers or robots where action "a" always results in condition "b". Markets are made up of people who change their minds on a dime and live their lives in a constant "gray area". Predicting their actions or reactions is akin to predicting the path of a tornado - You do so at your own peril.
If that's the case, and everyone knows it, then what's the best solution for government? Do nothing - It's really that simple. Let the market sort itself out. Will it be painful? Most assuredly - but that's the medicine for the sickness we allowed to permeate our economy and medicine always tastes bad...
Posted by Nick | November 25, 2008 12:12 PM
meganmcardle.theatlantic.com |
