I haven’t yet, and probably never will, fully think through this editorial from today’s Wall Street Journal, titled An Economy of Liars. The author is from the Cato Institute, a right-libertarian group, so read it discerningly for that bias.
Thomas Carlyle, the 19th century Victorian essayist, unflatteringly described classical liberalism as “anarchy plus a constable.” As a romanticist, Carlyle hated the system—but described it accurately …
The idea that multiplying rules and statutes can protect consumers and investors is surely one of the great intellectual failures of the 20th century. Any static rule will be circumvented or manipulated to evade its application. Better than multiplying rules, financial accounting should be governed by the traditional principle that one has an affirmative duty to present the true condition fairly and accurately—not withstanding what any rule might otherwise allow. And financial institutions should have a duty of care to their customers. Lawyers tell me that would get us closer to the common law approach to fraud and bad dealing …
Hayek’s mentor, Ludwig von Mises, predicted in the 1930s that communism would eventually fail because it did not rely on prices to allocate resources. He predicted that the wrong goods would be produced: too many of some, too few of others. He was proven correct.
In the U.S today, we are moving away from reliance on honest pricing. The federal government controls 90% of housing finance. Policies to encourage home ownership remain on the books, and more have been added. Fed policies of low interest rates result in capital being misallocated across time. Low interest rates particularly impact housing because a home is a pre-eminent long-lived asset whose value is enhanced by low interest rates.
Distorted prices and interest rates no longer serve as accurate indicators of the relative importance of goods. Crony capitalism ensures the special access of protected firms and industries to capital. Businesses that stumble in the process of doing what is politically favored are bailed out.
Note through this that it’s not just big business lying. Big business and government are in bed together.
But “financial institutions should have a duty of care to their customers”? And “Deregulation is not some kind of libertarian mantra but an absolute necessity if we are to exit crony capitalism”?
Yes, but who will enforce that if not the “cognitively captive” regulators? Class action lawyers? Sheesh! They’re as unpopular as bureaucrats, and justifiably so in many, many (most?) cases. Dismantling regulation per se is not an adequate response. That will only leave us captive to megacorp or to a new cartel of judges and shysters with a chaotic jumble of 50 different rules, one per state.
On the other hand, a local bank, not answerable to a Mother Ship in New York City, might behave itself without massive, Washington-based regulation and without big gun bullshit slingers like the Breck Girl, John Edwards, to sue them if they do get out of line.
Isn’t this another indicator that we need some trust busting of the “too big to fail”? Then we can deregulate. Right?