There’s been a lot of talk lately about market failure, although some of it, perhaps a lot of it has been misleading.
The basic argument goes like this: finance has been relatively unregulated over the past generation, in contrast to the 50 or so years following the Great Depression, when the first round of government oversight befell Wall Street. Lessening the regulatory strings that bound is at the heart of the current ills. The solution: ratchet up government regulation, just like in the old days, a decision that will inoculate the economy from similar bouts of trouble in the future.
Undoubtedly, some reordering of regulatory powers is in order. The fact that the government had to step in and bail out Bear Stearns, Freddie and Fannie and lesser names suggests that something’s amiss. But let’s be clear: rethinking regulation isn’t the same as creating more regulation. And even the most-intelligent regulatory notions will come at a price.
New government regulations, no matter how well meaning or deftly conceived will spawn unintended consequences. History is clear on this point, as it’s been proven time and time again. Market forces are always with us. Governments are inclined to suppress and re-engineer those forces to satisfy political demands. That’s all well and good, and in a republic the crowd’s demands, within reason, must be addressed. Still, the basic inspiration for action on this front is invariably one of manufacturing a free lunch of one sort or another. But there is no free lunch. Of course, that piece of information tends to be overlooked at the dawn of a new age of regulation.