The Riskiness of Putting Trust in the Best and the Brightest

The Washington Times%u2019s Tony Blankley makes a strong case against Uncle Sam%u2019s proposed %u201Csystemic-risk regulator.%u201D  Here are his concluding, and I think key, paragraphs:

But the purpose of the proposed systemic-risk regulator is not only to spot the impending systemic risk %u2013 but to intervene to prevent it from happening. Consider the power such a regulator would have. Consider that the existence of such a regulator would increase moral hazard %u2013 as it would be assumed that if the systemic regulator isn%u2019t warning of danger, market players would be more likely to assume risk is low. And consider the consequences of using such power mistakenly.

For example, let%u2019s say the regulator spots what he believes is a dangerous national real estate bubble. He acts quickly to snuff it out by raising interest rates or requiring minimum 40 percent down payments or some other intervention. What was a booming economy with 3 percent unemployment turns into a hard recession with 8 percent to 10 percent unemployment.

But later it is determined that it was not a bubble, but rather the beginning of what would have been a steady, healthy increase in value. Imagine if such a regulator had existed in 1955 and snuffed out the great post-World War II expansion that made America a prosperous middle-class nation of homeowners in suburbia rather than poorer renters in the city.

It is not given to the smartest people in the world the capacity to see the future, to discern with sufficient precision the details of the moment that cause the critical consequences in the future.

But it certainly is the lamentable history of man that we have the power to screw things up all the time. Remember the vaunted Japanese industrial policy of the 1970s that was going to permit Japan to shrewdly dominate the economic world over us hapless free-market countries with no governmental power to identify the industries of tomorrow?

In the end, the call for a systemic-risk regulator is yet another futile expression of faith in the power of government to outthink the markets. It is another foolish bet on bureaucrats and politicians in a tightly regulated economy being more likely to bring prosperity than free businessmen, investors and consumers in a free market. It is the biggest sucker bet in history: a bet on tyranny over liberty.

–>

View commentsComments    Share

Share    Print

 Print    Email

 Email

I look forward to reading http://www.amazon.com/Unchecked-Unbalanced-Discrepancy-Knowledge-Financial/dp/144220124X which will probably touch on similar points.

check me out at posterous here.

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: