11/29/2010

Are regulations good or bad?

Prior to reading the article Seven Deadly Sins of Deregulation - and Three Necessary Reforms I would have said that I am more for deregulation than for regulation. From a simplistic viewpoint, I believe in the invisible hand and in free market economics. However, I know that theory and practice are two separate items. I understand the theory is sound but its implementation is far more complex. Selfishness and self interest may make one prosper, but at whose expense? Without some form of regulation, business owners etc. would have free reign to exploit others without fear of retribution. Thus, for the sake of safety and fairness, I have to agree that complete deregulation is not a wise action. Rather, regulations must be in place to protect the uninformed and unwise. For without some form or regulation, “moral hazard” would prevail and businesses would take too many risks without bearing the full consequences of their actions.

4 comments:

MIA said...

Regulations are good and bad. One reason America can prosper is because it is protected from thieves. However, regulations can hinder the economy when they become too involved. The invisible hand needs its freedom to bring the butcher to the market.
I would agree that our society is becoming too regulated. New laws are always being created without the help of economist and too few if any laws are abandoned.

kmuteki said...

"...that they are endowed by their Creator with certain unalienable Rights, that among these are Life, Liberty, and the Pursuit of Happiness--That to secure these Rights, Governments are instituted among Men..." I think that one of the real issues with this statement that the left and right will always argue is the interpretation of what "Life" means. Does it mean safety? If it does, to what extent should the government secure our safety? I think that the Founding Fathers were wise not to detail this. They showed faith that the American people would find the proper balance. I think that regulation is wise to keep Americans safe, but should only be done with the intent to limit that regulation as much as possible while solving the problem at the same time. I think that 2800 pages of financial reform is ridiculous. The author of the original article, which I think is flawed in many ways, summed up the problem in about 3 pages. The article refers to the 20's as "ruinous." Below I have pasted a link to a very interesting research document that compares the 1920's to the 90's, and shows that the 20's were anything but ruinous. Yes the free market has problems and will create and make mistakes. The reason why deep recessions and depressions come is because of how governments respond to "crisis." Take a lesson from Reagan.


http://faculty-web.at.northwestern.edu/economics/gordon/P367_PDF.pdf


http://www.1920-30.com/politics/

Dave said...

-1 on MIA for spelling.

Walla Walla: who regulates the regulators?

I'm torn about this one myself. Where do we draw the line between necessary and invasive regulations?

I think we spend far too little time in policy-oriented discussions thinking about how we ensure that the regulations are sound, and the regulators are doing their jobs.

NB: Your use of "moral hazard" isn't appropriate. A hazard is not something that prevails. Rather, it's something we could avoid, but might not.

FWIW: The evidence in finance is not that businesses take too many risks when they feel free to. A huge problem in corporate finance is how do you get managers to undertake as much risk as the owners would like. So ... I'm suspicious of that sort of hyperbole being used to justify more regulations.

Kmuteki is right about the 20's. Claims that the 20's were a problem border on having a mental condition that requires medication. This is like saying the reason the U lost a couple of games is because of all the ones before them that they one. It requires a suspension of critical thinking to buy into. The source of that sort of thinking is underlying puritanism - with beliefs that bad times are caused by having good times first. No doubt this is true sometimes, but to toss off ideas like that so casually - as many in the media do - is a disservice to everyone.

Dave said...

-1 on MIA for spelling.

Walla Walla: who regulates the regulators?

I'm torn about this one myself. Where do we draw the line between necessary and invasive regulations?

I think we spend far too little time in policy-oriented discussions thinking about how we ensure that the regulations are sound, and the regulators are doing their jobs.

NB: Your use of "moral hazard" isn't appropriate. A hazard is not something that prevails. Rather, it's something we could avoid, but might not.

FWIW: The evidence in finance is not that businesses take too many risks when they feel free to. A huge problem in corporate finance is how do you get managers to undertake as much risk as the owners would like. So ... I'm suspicious of that sort of hyperbole being used to justify more regulations.

Kmuteki is right about the 20's. Claims that the 20's were a problem border on having a mental condition that requires medication. This is like saying the reason the U lost a couple of games is because of all the ones before them that they one. It requires a suspension of critical thinking to buy into. The source of that sort of thinking is underlying puritanism - with beliefs that bad times are caused by having good times first. No doubt this is true sometimes, but to toss off ideas like that so casually - as many in the media do - is a disservice to everyone.