Monday, July 5, 2010

I Want to Be a Pure Economic Libertarian, but…

There are some who say they want a totally deregulated business environment. I don’t see how that is possible. I say that because some business decisions (cut corners on underwater oil drilling, create derivative financial products around probable bad mortgages) create collateral damage that the business has not, and cannot, account for. The accounting system (GAAP) has huge holes in it. The cost of an environmental disaster such as we’re encountering in the Gulf could not have been costed when that drilling platform was sent to do its work. The economic fallout (frozen credit markets, bankruptcies, unemployment) could not have been costed when CDOs and CDSs were created. How do you value such calamities?  If you could give it a wild-ass-guess, you’d never drill for oil or create new financial products – innovation would grind to a halt. However, when things do go wrong, somebody has to pay to clean up the mess. And the only “somebody” that can is the taxpayers, through the proxy of government. And, because the taxpayers generally foot the bill when things go really wrong, the taxpayers have a right, an obligation really, to create regulations to try and avoid those disasters from happening again. That is the reason I think a truly, fully deregulated business environment will never be practical. And that is the reason I can’t subscribe to pure laissez-faire free market economic theories, as much as it appeals to me for other reasons.

1 comment:

Perplexio said...

I partially disagree despite your rather strong arguments. Some of the mess we're in now stems from our government trying to tell the private sector how to do business. The whole can of worms with the sub-prime mortgage mess that collapsed the housing market started when Congress decided to pressure the financial sector into offering loans to everyone. That is to say there are certain congress-critters (Barney Frank in the HoR, Chris Dodd in the senate both come to mind) that seem to think home ownership is a a right or entitlement that should be extended to all Americans... including those who really can't afford it. As a result, the once careful banking industry that for decades had done an exceptional job being responsible with money suddenly started speculating like mad.

I say I only disagree in part because I do see a need for SOME regulation for the very reasons you stated... But if you were to look at the resumes of those who serve us in Congress-- many of them are FAILED businessmen... These are the guys who DON'T know nor do they understand how to run a business successfully... are these really the guys you want deciding how to regulate the private sector?