krazy kaju
Member
- Joined
- Jan 23, 2008
- Messages
- 1,683
As economist Scott Sumner explains:
In other words, if people are irrational, it doesn't mean that we need more government power because the government itself is made up of those irrational people. Allowing regulators to have increased powers will simply slow economic growth by increasing regulatory costs while failing to prevent future bubbles.
Now this doesn't mean that there aren't certain regulations which we could inact after the fact (like full reserve requirements!), since those are not subject to the presumably irrational whim of regulators.
So the anti-EMH argument for regulation must be based on the following; bankers are irrational and make lots of foolish loans. Regulators are rational and can see that these loans are too risky, and can protect bankers from hurting themselves. At a theoretical level this doesn’t even pass the laugh test. But what happened in practice? What position did the “regulators” take in this crisis? First we need to define “regulators,” who are much more than just the low-paid Federal bureaucrats that oversee the banking industry. Regulators are the watchmen, those who watch the watchmen, and those who watch those who watch the watchmen. In other words:
1. The President
2. Congress
3. The Fed
4. The media
5. Most academics
6. Nouriel Roubini
Guess how many of these institutions warned us about the sub-prime crisis. Now guess how many were encouraging banks to behave even more recklessly than they did. Unless we plan on making Roubini dictator of the world, there is zero evidence from the sub-prime crisis that simply giving regulators more power would have helped. And how do we know that even Roubini wasn’t just lucky, and might miss the next fiasco?
1. The President
2. Congress
3. The Fed
4. The media
5. Most academics
6. Nouriel Roubini
Guess how many of these institutions warned us about the sub-prime crisis. Now guess how many were encouraging banks to behave even more recklessly than they did. Unless we plan on making Roubini dictator of the world, there is zero evidence from the sub-prime crisis that simply giving regulators more power would have helped. And how do we know that even Roubini wasn’t just lucky, and might miss the next fiasco?
In other words, if people are irrational, it doesn't mean that we need more government power because the government itself is made up of those irrational people. Allowing regulators to have increased powers will simply slow economic growth by increasing regulatory costs while failing to prevent future bubbles.
Now this doesn't mean that there aren't certain regulations which we could inact after the fact (like full reserve requirements!), since those are not subject to the presumably irrational whim of regulators.
There was a thread in the Economics & Sound Money sub-forum today that blamed the rise of gasoline prices on "manipulators".
