The Economist's Cookbook

Recipes For A More Free Society

  • "The curious task of economics is to demonstrate to men how little they know about what they imagine they can design."

    - F.A. Hayek

How should we then regulate?

Posted by The_Chef On 10:31 AM 3 comments

A valid question from Mark over at The Soul of Atlas:

Question: What is the appropriate role of regulation (by government) of the financial system (specifically, banks)?

While ultimately I really am an anarchist, I tend toward minarchy for the sake of initial practicality. As a result I believe that general laws against theft and fraud are essential to a free and just economic system. The only other regulation that I really want to see is something along the lines of full disclosure. I don't want JP Morgan to be able to arbitrarily not tell me things about certain investments. Aside from that, I don't really want to see any regulation.

However I should note that this is assuming stable money. So I've essentially already thrown out the Federal Reserve and gone, at least in this gedankenexperiment to a privately issued currency backed by some sort of bullion or commodity backing.

So yes I'm making some major assumptions. Honestly, if we truly had a free market, capital movements would be so much more fluid and maybe, just maybe people would get over this absurd idea that certain businesses are "too important to fail". On the contrary, it is the most important businesses should be the ones that get wiped out when they fail so that someone else can absorb their resources and put them to a more highly valued use.

Now I'm quite sure that there might be some readers that are true anarchists and will say "Ah but the imposition of the power of the state ... blah blah" and they will cite Robert Higgs work on the 'ratchet effect of government power'. I agree with their fundamentals, but all changes are marginal. Without those marginal changes, we won't get anywhere because just saying you want anarcho-capitalism is akin to putting a loaded gun in someone's hand and putting it to your head intellectually.

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3 Response for the "How should we then regulate?"

  1. VH says:

    I am more of an anarcho-capitalist (big fan of Murray Rothbard) but I, like you, realize that practicality serves well and better than strict adherence to ideology; we must work within the system we have.
    As far as banks go, I would like to see as little regulation as possible but I know that in the real world that is not possible. Note that very few private equity firms (not regulated) have been affected by the current economic crisis and they certainly will never be able to be bailed out like the regulated institutions have been.

  2. Mark says:
    This comment has been removed by the author.
  3. Mark says:

    I think Jim Rogers falls somewhere short of anarchy, but I appreciate his laissez faire perspective. When asked what should we expect from the G-7 leaders, Rogers replied that he suggests they go to a pub and order a beer so that they'll stay out of the equation. His point is that the excesses that caused the present turmoil are best addressed by the free markets, where the assets eventually end up in the right hands. The link to the video: http://www.youtube.com/watch?v=xIsHD7nwTbU