economics free market freedom

Vanity Fair econ… ugh.

A friend asked me what I though of this article in Vanity Fair. My basic thought is that you find what you look for. Everything he mentioned reminded me how much the government had screwed up. He enumerated all of the things that the government did or had power to do (Alan Greenspan, various legislation, etc.) and how disastrous they were and then concludes that “anti-regulation fanatics” were to blame for the current mess. Huh?

I think a more reasonable way to look at it is that the government either shouldn’t have the power it does (via the fed) or should stop trying to compensate for its market distorting reactions to other market distorting legislation (like Sarbanes Oxely etc.). Instead of picking out one fed chair and (rightfully) complain that he screwed some things up, why not ask why a person or board has that kind of power in the first place? Instead of complaining about the repeal of Sarbanes et. al, why not ask what the markets were reacting to that made that legislation first attractive and then unattractive? I’m willing to bet that it was a reaction to some sort of legislation that caused that law to be “needed” in the first place. I’m also willing to bet that both in the enactment and the repeal of that law, they got it wrong…

His sneering at self-correcting markets is especially galling, how would he know how well they work? First off, they don’t exist in the financial world. On top of that, they are never allowed to correct. No one ever claimed that perfection would result from totally deregulated markets, but they do indeed “correct” themselves. I’m ignoring the strawman that people have been chomping at the bit for totally deregulated markets. As far as I can tell, people have wanted less regulated markets, or at least minimally regulated ones.That’s not the same thing at all… Anyway, it is the attempt to mitigate these corrections that causes so much widespread trouble. Trying to “fix” the result of markets only leads to other consequences. Markets only work well if the negative things are allowed to happen. Stupidity and excessive risk taking should be their own punishment….

How people can propose more regulation to fix problems that have government’s fingerprints all over them really confounds me. Why does he think it is possible for effective legislation for such a complicated issue to come out of the political process? Why does he not think that even if we did get the most brilliant economists (even by his standards) running things via regulation that they would be replaced by other people eventually? If you give power to people to regulate things, the political process will make a hash out of the best intentions.

So I’m not going to attack his econ cred. I’d look pretty silly with my several semesters worth of econ vs. his nobel prize… I have no reason to disbelieve his analysis of cause and effect. I am attacking his myopic view of what regulation is capable of and of the process that creates that legislation. There isn’t any reason to think that different regulations wouldn’t cause other problems. This is, in a nutshell, why the vast majority of professional economists drive me crazy. They know their models well, but they confuse those things with economics.

The main point that I got out of it was “The party I don’t like made some decisions that had bad consequences, so they’re all stupid.” His juvenile worship of the philosopher/economist technocrat getting things right blinds him to the reality of the political process. Unfortunetly, this idea of “If only we had the right people administering the right laws, everything would be fine,” is probably the most widespread view out there. Sigh…. Freer markets are by no means perfect, but they are a hell of a lot more democratic. In a totally free market of exchange, the damage caused by bad decisions are mostly limited to the people involved in that exchange. In his world, if all of the politicians involved in his regulating efforts aren’t blessed with perfect foreknowledge of all consequences for years to come from their regulations, we all feel the effects of their decisions.

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