Great tutorial on the consequences of the bailout. Roberts is an economist at George Mason.
At the end of the clip, Roberts makes these important observations about regulation:
A lot of the people who want more regulation are the same people who want less money in politics. And it's a noble goal, less money in politics … fewer special interests. People often forget that the reason the special interests are so powerful in politics is because government has so much power and so many goodies to hand out. So if you're handing out goodies people pay a lot of attention to you. Just the way of the world, Its true the private sector, its especially true in the public sector. If you're spending 3.1 trillion dollars and if you are writing regulations that affect peoples lives, strangely enough people have in interest in trying to get you to change those rules to help them rather than helping others.
When people come to me and say they want to get money out of politics I always say make government less powerful. I works like a charm. As our government has gotten more powerful, yes, money plays an increasingly important role. And it's not a good thing. It's a bad thing. I want to see power decentralized … pushed down to us and away from them.
I understand that those clamoring for much greater regulation fail to see an enormous fallacy in their argument: namely, the presumption that economies can effectively be managed. There is no question that economic injustices are to be expected without minimal levels of government regulation, particularly in transparency and financial reporting. (Markets without regulation are not utopia but Haiti.) But it does not follow that if some regulation creates greater justice, more regulation will bring more justice.
Regulation presents three enormous challenges:
1. Incomplete information – No individual or group can ever be certain they've collected sufficient information to make an appropriate regulatory judgment. Furthermore, it is impossible to know exactly the aggregate response from people to policies conceived with perfect rationality. People don't always behave in ways that seem rational policy creators.
2. Complex iterative responses – No individual or group can see the full range of iterative effects that will evolve from a particular regulatory action. The Community Reinvestment Act from the Carter administration, beefed up during the Clinton administration, aimed to increase homeownership among low-income people. It forced institutions through regulation to make economically irresponsible loans. Through regulation, as Roberts notes, interest rates were kept artificially low, thus encouraging people to borrow beyond what they should have (and would have) had the markets been allowed to function. "Mark to Market" accounting regulations imposed in the post-Enron era didn't cause the crisis but had a profoundly negative impact in accelerating and exacerbating the crisis. I sincerely doubt that those who set these balls in motion intended to create what we are experiencing today, but intentionality isn't the issue. Cause and effect are. What are the unintended consequences of regulation that we might enact today? The answer is that we don't fully know, so we should be prudent with regulation.
3. The inherent impure quality of politics – Regulation is never purely about righteousness. Politicians calculate the political impact regulation will have on them and their colleagues. The higher the financial stakes, the greater the impact of political calculations versus justice considerations. The higher the financial stakes, the greater the inflow of special interest/corporate money and influence to protect agendas. High levels of regulation create a symbiotic marriage of political and economic elites, producing a fertile breeding ground for corruption. Why would we think powerful politicians are somehow saintlier regarding greed and power than Wall Street bigwigs? It is impossible to have high levels of regulation and low levels of special interest/corporate influence.
So my point is that we need regulatory reform. Still, simplistic bashing of market economics in favor of populist and idealist visions of managed economies is merely an exchange of one poison for another.
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