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« Opacity in Raleigh | Main | Big man not far from campus »

Mar 30, 2008

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Percy Walker

You’re right that we shouldn’t have privatized reward and socialized risk so out of balance. Put me down as an advocate for more privatized risk!

It's intellectual bloodsport on the left and right (I’m referring to socialists like Pat Buchanan and Ben Stein here) going after the free market “fundamentalists,” as you and many others call them (us!), but let’s give government interference some credit. We have distortions in the housing market caused by FHA insurance, the tax deductibility of interest payments and, of course, the quasi-governmental Fannie Mae and Freddie Mac. You’ve got the cheap money caused (at least a little) by the Federal Reserve’s actions. There’s also the negative inducements cause by the Fair Housing Act and Community Reinvestment Act and the desire to avoid charges of discrimination.

And then there is the free marketer’s biggest lament: the risk shouldn’t be socialized in the first place. The moral hazard shouldn’t exist. It only exists because of the not unreasonable expectation that the government will jump in to protect us. Anyone who says otherwise isn’t a free market fundamentalist in the first place!

That said, I’m all for rules that make the markets more efficient.

Ed Cone

I think we're in agreement here, PW, at least in general terms. Exogenous factors influence the market, but they are noted selectively by interested parties (I cite the Fed influence here).

I find Kuttner's argument compelling: "If you are going to rescue markets from their excesses, on the very reasonable ground that a crash threatens the entire system, then you have an obligation to act pre-emptively, prophylactically, to head off highly risky speculative behavior."

I'd be interested in hearing from our mutual friend the attorney on the mood in the hedge fund industry.

Laura James

Ed: What a GREAT article.
"Under-regulation ignores the realities of human behavior and the excesses of the marketplace." How true.

Capitalism, much like race in America, is one of those untouchable topics, as you suggest. The fact is, that when they embraced capitalism, versus some other economic system, the founders made a deal with the devil that Thomas Jeffeson and other lovers of freedom and democracy and equality were very much aware of.

Now the discussion of the dangers that unregulated capitalism poses to civil society is largely suppressed in most Americans minds, and by the media. It's like the elephant in the living room. Personally, I love capitalism and free enterprise -- but we have to accept that it needs to be carefully and wisely and constantly regulated in order to protect our other values. You know, sort of like what adults do -- which I realize is a stretch for most Americans. Conservative blowhards who play the "socialism" card are acting like self-serving and irresponsible children.

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