Markets Fail When Humans Are Unregulated
Submitted by bobbyw24 on Fri, 02/05/2010 - 06:25by Paul Craig Roberts on February 05, 2010
Former Federal Reserve chairman Alan Greenspan answered that he had placed his trust in a flawed theory when he was called before Congress to explain why he, Goldman Sachs Treasury Secretary Robert Rubin and Deputy Treasury Secretary Larry Summers, prevented Brooksley Born, head of the Commodity Futures Trading Corporation, a government regulatory agency, from doing her job of regulating over-the-counter derivatives.
The efficient markets theory is that unregulated markets are efficient and rational. According to this theory in which Greenspan placed his trust, unregulated markets produce the best possible result. Any regulatory interference worsens the outcome.
Greenspan blamed his own bad judgment on a theory. The theory, or Greenspan’s understanding of it, nevertheless still holds sway as Congress has proved impotent to re-regulate the gambling casino that is Wall Street. Clearly, the theory serves powerful interests.
But what is the truth?
The truth is that markets are a social institution. Their efficiency depends on the rules that govern the behavior of people in markets. When free market economists talk about markets deciding this or that, they are reifying a social institution and ascribing to it decision-making power. Socialists make the same mistake when they blame markets for the results of human action. But, of course, markets do not act or make decisions. People act and make decisions, and markets reflect the decisions and actions of people.
“Greed, and elected representatives who are toadies to special interests, are decimating the American economy.”
The entire debate over regulation is misconstrued. It is not the market, an efficient social institution, which is regulated. What is regulated is the behavior of people in markets. If you want good results from markets, good regulation of human behavior is a requirement.
The market is like a computer. Garbage in, garbage out.
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The delegation to a body of representatives
is not a social representation of a free market, so it can not reflect the goods and ideas produced by a free market. Only the market can regulate… something of which has to be internally produced and withheld from a collective decision. Human action equates to innovation, a misunderstanding of monetary policy can lead one to assume central planning is required to sustain innovation. However, the fact that we transfer monetary powers to policy decisions leaves no room to measure a unregulated market.
The role of a farmer, in Fukuoka's mind, is an observer, not an intervener, of the natural order in his/her particular landscape. How is that any different than Hayek in regards to Economics?
Paul Craig Roberts has gone
Paul Craig Roberts has gone liberal. Between calls for a single payer healthcare system and regulation, he does make some decent points on the anti-free trade front. Unfortunately, while he was once a top free market economist, his ignorance of Austrian-style monetary policy has led him to the logical conclusion that deregulation was the problem. Its true that we need regulations, but those from the market and not from DC.
Ventura 2012
The theory is somewhat correct.
Markets are rational. But that doesn't mean they will make sense to anyone but the buyer and seller involved.
Second, we don't have free markets. Haven't for longer than any of us have been alive. So no assessment on "markets" can be made accurately other than they are manipulated and there is massive attempt to centrally direct and plan them. And that always leads to societal collapse.
external regulation is an illusion.
Bernie Madoff was heavily regulated by the SEC for many years and you see the result.
The markets regulate themselves by killing off the incompetent. Goldman, AIG, Merril, should all be extinct like Lehman. The executives (like Blankfeld) should all be out on the street, not collecting bonuses.
While it would have been a very painful shock to the financial system, it also would have sent the appropriate message. The system would have eventually learned from its mistakes. However, thanks to government intervention (ie. bailouts) the mistakes will continue, probably more so.
It was fake regulation to
It was fake regulation to allow theft and fraud.
http://FlipFlopRomney.blogspot.com
Bump to end arrogant ignorance.
End the FED
End the CIA
End the FDA
Decriminalize
And never forget, “Humans, despite our artistic pretensions, our sophistication and many accomplishments, owe the fact of our existence to a six-inch layer of topsoil and the fact that it rains.”
Bump
Opinions?
ultimatecynic