"...as if people who move to Washington and other centers of regulatory power cannot err and all their oversight will be pure and wise..."
Whenever I encounter the sentiment expressed in the following, I get pretty pessimistic about how today's commentators tend to think: "Goodman [the author of a free market bashing book, Past Due (Henry Holt, 2009)], a fair-minded reporter and a clear writer, demonstrates how both Bernake and Summers, along with most other major economists and Wall Street plutocrats of the past two decades, became entranced by the Greenspan-Chicago School notion that financial institutions can be trusted to police one another in the absence of rigorous government oversight...." (NYTimes Book Review, 10/11/09, p. 17) Just consider that while the reviewer, the†Business Week managing editor Paul M. Barrett, shares Goodman's severe dislike of free markets and those who consider it, or whatever bits and pieces of it exist, a promising instrument for dealing with the country's economy, he has complete faith in "rigorous government oversight."
How is this possible for any person who has even the slightest claim to being rational? The market, after all, is a place where economic decisions are made by agents who normally pay a heavy price for making mistakes. Maybe not immediately but in time--the Enron fiasco is a case in point, as is the recent meltdown within what amounts to, in fact, a highly mixed--rather than a free market--American economy. No one in his right mind believes that market agents are all omniscient and/or supremely decent. There are rogues in all areas of life.
However it takes a very foolish individual to notice mistakes in the market--market failures, so called--while being oblivious to errors made by bureaucrats--political failures, that is. The so called rigorous government oversight is treated by such foolish folks as somehow guaranteed, as if people who move to Washington and other centers of regulatory power cannot err and all their oversight will be pure and wise. Not only is such an outlook naive and ignorant of one of the best ideas to emerge from economics, namely, public choice theory. It is simply self-contradictory. People in free markets are so prone to corruption while people in government are not! How is this possible when both groups are people and in centers of power the incentives to guard against error are virtually nil?
Of course, the claim that Bernake, Summers, and Wall Street were all "entranced by the Greenspan-Chicago School notion" is balderdash to begin with. Geenspan's early admiration for Ayn Rand's political economic philosophy has had very little if any impact on his work at the Fed. The very idea of the Fed is anathema to Rand's viewpoint and in the end also of the views of the late Milton Friedman who wrote Capitalism and Freedom (1961). And the self-interest Greenspan referred to in October 2008 as the culprit has nothing at all to do with Rand's classical notion that what people ought to do in their lives is promote their rational self-interest, to pursue their human happiness in their lives.
So the premise of the idea Goodman advances and Barrett supports is flawed to the core. But even more importantly, where is the common sense of these people as they express such total faith in rigorous government oversight when, in fact, the government has had the power of such oversight since the Fed was founded back in 1913? As the Harvard economist Niall Ferguson pointed out in, of all places, The New York Times Magazine, back in May 2009, "The biggest blunder of all had nothing to do with deregulation...." Someone needs to explain to Goodman and Barrett that when people have political power at their disposal, they cannot be counted upon to apply it fairly, sensibly, consistently, and competently to the task of managing other people, including those in the economy. What they can be counted upon to do is to push for an agenda of their own. This is for two reasons. First, they have no clue what their job description as "public servants" means since the public is, of course, a huge variety of human beings with extremely diverse interests; and most of these folks have goals of their own they are free to pursue with impunity while in office. That is what having sovereign immunity means, not having to answer personally to objections from the citizenry!
Rigorous government oversight is but magical wishful thinking, nothing else.
October 12, 2009
We are delighted to present Lessons in Freedom, essays by Dr. Tibor Machan, for your pleasure.
Dr. Machan holds the R. C. Hoiles Chair in Business Ethics & Free Enterprise at Chapman University's Argyros School of B&E.
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