News & Analysis
Can Regulators Do the Job of Markets?
INTERVIEW: ESMA's Ross: Regulators Struggle To Find Right Resources ... Financial regulators face the challenge of having the right resources and the right information to do their job properly, a leading figure at the European Securities and Markets Authority said Thursday. "I think it is a big issue for many regulators. Having the right resources and the right information to see where the potential risks might be arising is a big challenge." – Wall Street Journal
Dominant Social Theme: Give regulators more tools and they will triumph.
Free-Market Analysis: The Wall Street Journal has an interesting post today on the struggle of regulators to obtain tools that will allow them to analyze the risks that the market faces.
Is there really a tool or tools (and resources) that will allow regulators to anticipate market risk? From our point of view this is basically an elite dominant social theme.
The power elite that wants to run the world needs government in order to carry out its program. The methodology is called mercantilism and all sorts of reasons are advanced to pursue it.
Regulation is one of the biggest elements of this argumentation, along with war – "the health of the state."
Regulation in the US in particular was once conceived of as a regularizing responsibility. But Franklin Delano Roosevelt's regime changed all that. Regulation today is seen as a market "corrective."
But free-market thinkers would argue the opposite. It is not market failure that is the problem but over-regulation and regulatory capture.
The idea that regulators can figure out in advance what parts of the market are "risky" and what parts are not is akin to financial fortune telling. It can't be done. If people could predict the future they wouldn't be working in a regulatory capacity. They'd be raising money to make a killing.
Alan Greenspan, former chairman of the Federal Reserve, struggled with this issue early in his tenure before finally confessing that there were no predictive tools available to him.
The tool he decided was the most predictive was the price of gold, but even this tool was only available "looking backwards." He admitted as much in various hearings.
It is not merely risk that must be analyzed within the regulatory brief, but a larger set of interactions. When one creates law, one does so with the confidence that the law will yield certain results.
One reason that Austrian economics is despised by the mainstream (statist) status quo is because it is essentially a subversive discipline that makes points about government that cannot be rebutted.
Chief among them is the idea of individual human action. Ludwig von Mises postulated that people will pursue their self-interest regardless of laws and regulation – and especially forced resource distribution (socialism).
This is because each instance of interference in the marketplace distorts price signals and makes it more difficult to determine what is a good investment – or product or service – and what is not. Price fixing is essentially what government regs do, and price fixing never works.
It is not possible to for regulators to figure out in advance what parts of a market are "risky." It is not possible, even, for lawmakers to anticipate the ramifications of the laws they pass. The more laws and regulations that are in force, the more the market itself is affected negatively. Resources are wasted and productive efforts wither.
Conclusion: Competition is the only real discipline available to human interactions. The more competition, the better. The cult of modern regulation – and lawmaking – is a destructive one.