Here’s one of the simple truisms that gets lost in the political (i.e., bumper sticker) discussions.

Don’t regulate the free markets! Don’t interfere with innovation! Don’t stifle incentives!

What bullshit.

One of the best ways to win a debate is to control the language used. This was one of the elements George Orwell was discussing in 1984, and why the language in the novel was degraded to phrases like “double plus good.” All nuance was dismissed. He who controls the language controls the political economy is what Orwell was saying. In modern times, its done not with boot-jacks and guns, but with catchphrases and clever marketing. Its not as heavy handed, its just more insidious.

When we discuss “Regulations,” we are talking about regulating human behavior. And that behavior can range from following misplaced incentives to falsifying accounting data to overtly legal but destructive actions — like putting people into loans they knew (or reasonably should have known) were likely to default.

What a terrible sham the no “regulation cry” has been. It is really a vote for no rules against illegal and/or criminal behavior . . .

Category: Bailouts, Legal, Regulation

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

55 Responses to “What Does Regulation Regulate?”

  1. Scott F says:

    Nineteen Eighty-Four’s title, its terms, its language (Newspeak), and its author’s surname are bywords for personal privacy lost to national state security.

    “Orwellian” denotes many things. It can refer to totalitarian action or organization, as well as governmental attempts to control or misuse information for the purposes of controlling, pacifying or even subjugating the population.

    “Orwellian” can also refer generally to twisted language which says the opposite of what it truly means, or specifically governmental propagandizing by the misnaming of things; hence the “Ministry of Peace” in the novel actually deals with war and the “Ministry of Love” actually tortures people. Since the novel’s publication “Orwellian” has in fact become somewhat of a catch-all for any kind of governmental overreach or dishonesty and therefore has multiple meanings and applications.

    Deregulation = Free markets = Economic Collapse

  2. Marcus Aurelius says:

    Regulations are laws, and laws, regulations. A society without laws? Yes, let’s try that.

    Oy.

  3. “He who controls the language controls the political economy is what Orwell was saying.”

    and, we need its Twin:

    “He/That which controls the Currency controls the Financial Economy”

    in order to decrypt our present circumstances..
    http://www.thefreedictionary.com/decrypt

  4. dig1 says:

    I couldn’t disagree more. Given how i think about the situation we are in is comical and despised by a lot of people, i cringe to bring the subject up. But in reality, isn’t this whole mess under girded by the idea of a post-modern society? Anything goes. We don’t have a reference point. We don’t know what’s right from what’s wrong, so we can make it up as we go along, because all that one cares about is oneself. There’s a sinister existential element to this whole mess that most of never want to admit because, the logic does and will have a didactic sting to our personal belief systems and behaviors. Whether we like it or not, that is going to continue on unless we (let’s not kid ourselves, old dogs won’t learn new tricks) , our kids, start to learn to have a reference point as a whole society. You want proof, tell me one CEO, that has stood up and said “I regret to have made some decision, though given at the time were right, have proved to be so catastrophic”. EVERYBODY is trying to save their ass. What they don’t realize is they are putting their sons and daughters to the fires by saving themselves in the form of prolonged taxation. Way to go dads and moms.

  5. DaveM says:

    …”In modern times, its done not with boot-jacks and guns, but with catchphrases and clever marketing. Its not as heavy handed, its just more insidious.”…

    “What a terrible sham the no “regulation cry” has been. It is really a vote for no rules against illegal and/or criminal behavior . . .”

    When I was growing up I was taught to be on guard for people trying to take advantage of you….not to trust what advertising promised but to see for myself. I was taught to give people a chance and let them prove themselves…. These beliefs were the products of a generational era that was learned by doing and seeing. I do not understand how someone could borrow a few or several times their annual income without reading all the paperwork and asking questions. But even if I am forced to accept that such a period of lunacy happened, what is regulation going to do that the experience already has not done to change people’s behavior? And if you are well off and bought into SIV’s will you do it again even though there is a risk clause attached to the promise of another half point on your money?

    If the focus of so many tax dollars is to protect the incredibly stupid things people may do, then are our expectations setting us up to be disappointed no matter what?

  6. Mike in Nola says:

    Just one aspect of the whole theme of the administration: concoct language which will be parroted by the tame media who will do anything for access.

    “enemy combatant” or POW? The former can be picked randomly picked up off the street, drugged, flown to GITMO, tortured and locked in solitary for years without a trial because he was sold to the naive CIA for $20k by a warlord who wanted cash. The latter is entitled to the protection of the Geneva Conventions.

    “terrorist surveillance” or eavesdropping on US citizen in their own country?

    And I hate to mention “tort reform” since everyone has been programmed to know that all “trial lawyers” are inherently evil. This was one of the first examples of the tactic of attaching “reform” to things you want to destroy.
    Want to shield big business from the consequences of its own negligence or outright greed: “tort reform.”
    Want to excuse the rich from paying taxes: “tax reform.”
    Want to get rid of that socialist leftover from the New Deal and at the same time put a few more dollars int he pocket of Wall Street: “social security reform.”

    Here are a few more examples:
    http://corporatemofo.com/politics_and_other_bullshit/the_englishbush_lexicon.html

  7. VoiceFromTheWilderness says:

    Absolutely, couldn’t have said it better. The breakdown in honesty, and clarity of thinking that accompanies the succesful introduction of lies into public discourse is a hallmark of this age. The plethora of people walking around chanting slogans from ‘economic-religions’ without having the slightest bit of personal insight into the validity or lack thereof of these slogans is staggering. The fact that most think they are saying something that is ‘there own idea’ and not something that has been planted in their heads for the purposes, and benefit, of others is equally staggering.

    The imputed glory of ‘the market’ would be hilarious if it wasn’t such a nasty con. I site again the case of Leo Farnsworth — the inventor of television who died penniless (and dreaming of fusion power as a comeback) — his hardwork, and personal vision of the birth of a great and wise age of learning and knowledge brought on by television stolen from him (after he made it work) by David Sarnoff at CBS. ‘The Market’ is full of pickpockets, con artists, and overpowering force used in pursuit of personal profit, left to itself it will rapidly (astonishingly rapidly) collapse into free for all with a very few emerging victorious, ready for the battle the next day.

    Too bad in their desperate need for more they destroyed the most well balanced economy in the world, and the most open society inthe world.

    Think Hank Paulson can order us up a new golden age? Think he’s even trying?

  8. VangelV says:

    We have laws against the initiation of force or fraud to protect individuals. Additional regulations do not strengthen those laws but weaken them by allowing governments to protect favoured groups by forcing some people to do what they would never have chosen to do.

  9. dead hobo says:

    Are you asking about regulation that is protectionism or about regulation that prevents people from doing bad things to you. [BR: this has nothing to do with protectionism -- it is about deregulating the banking and financial markets]

    Most people don’t like protectionist regulation, unless they are the ones receiving income as a result of the protectionism. Government imposed monopolies are pretty good for business if you are in the protected class. They suck royally if you are paying higher prices because competition isn’t allowed.

    Predators will always be among us and poorly written regulations regulation prevent them from doing what makes them feel best. Slick con artists will find lazy and ignorant politicians who promote ‘freedom from excessive government’ as a mantra and the predators will support their efforts to make the world safe for said predators.

    People are basically stupid. One way to convince an angry mob that predators need protection is make an outrageous claim and say ‘you’re next if they get us’. For example, ‘pulling a gun from a cold dead hand’ can be equated to the need for free markets to allow 30 or 40 to 1 leverage with OPM and high management fees.

    In fact, the current SEC can be used as the poster child for the concept of Lazy Stupidity and Empty Suit Management. GWB is the new high water mark for that concept and will be tough to beat … unfortunately somebody will eventually. The current Republican Party has been and will continue to be the party of the predator and continue to celebrate institutional laziness, only it will be done with eloquence and wedge issues. The media will act impartial and embrace institutional stupidity because some advertisers support wedge issues and all day news cycles require a lot of hot air to fill up. Also, people like to be told how to feel, not encouraged to think.

    Predators and institutional laziness will always be here. You are naive and dreaming if you think real changes are coming. TARP trickle down economics is another government grant to exploit. Anecdotal stories abound about the lack of credit keeping the economy down, yet several oceans of money intended to free up credit have only created a minimum state of liquidity. Executives are protecting themselves. Uncle Stupid is failing to put the cash where it needs to actually be. The lower price of gas and other second level effects of lowered commodity prices are having a greater effect, I would argue.

    Regulation is really a tool for the creative and ambitious predator.

  10. Mike in Nola says:

    Would be interested to know how WordPress filters comments. Left one about 15 minutes ago and it hasn’t yet appeared. Thought it was a fluke, so I sent it again, but it told me I had already posted it. It was a rather wide-ranging rant on the Bush Administration’s control of the debate by its creation of terms parroted by the MSM. What are the magic words?

  11. dead hobo says:

    Mike in Nola said:
    December 22nd, 2008 at 8:43 am

    Would be interested to know how WordPress filters comments.

    reply:
    ———————–
    It’s probably some damn, pissy regulation getting in your way.

  12. debreuil says:

    I totally agree, no regulation is essentially saying ‘no laws in the bank robbery industry’ — at least for those who have a key to get in.

    “like putting people into loans they knew (or reasonably should have known) were likely to default”

    I am slowly working up a theory here (so start your BS meters!). One thing that has certainly happened is that while productivity has been increasing fairly rapidly, wages have been stagnating or worse. Normally that would cause at least a lot of labor unrest, more likely a bidding war for talent. This time though, the gains were given to people, but in the form of debt. This resulted in people not complaining (they ended up having a boat and a second car anyway), and yet not actually sharing in the gains in productivity. I don’t know if this was planned or not (I doubt it), but by this logic, a lot of that debt that the average person is carrying should really have been gains in wages. So instead of a gain, it is like a double loss (you pay the loan plus the interest, which gets killer as you close in on default — plus the stress of ruin!).

    For the record I’m not in debt, so this isn’t some way for me to try and get a free lunch : ). I was one of the stupid people who saved and went without things I couldn’t afford. Now that I’m faced with helping pay for it all (along with everyone else here), I’m just wondering who’s getting all the loot. Any time there are huge gains in productivity that translates into money for someone — that is what money represents at the end of the day after all.

    I’d like to blame the person with the mortgage they can’t afford, but something just doesn’t smell right about that. I know a lot of people in that situation, and they generally work hard and don’t seem to have a lot more that they ‘deserve’ given what they do. I think the natural workings of the ‘wages market’ has really been corrupted by easy credit, which is a fancy way of stealing from people.

    No?

  13. Mike in Nola says:

    debreuil: Your theory makes some sense, but I think the gains in productivity really came overseas. The US was enjoying it via debt. (See first scene of Peter Schiff in the video posted today.)

  14. d_h,

    yeah, of course, probably like this one:

    SEC. 899A. DEFINITIONS.

    For purposes of this subtitle:

    (1) COMMISSION- The term `Commission’ means the National Commission on the Prevention of Violent Radicalization and Homegrown Terrorism established under section 899C.
    (2) VIOLENT RADICALIZATION- The term `violent radicalization’ means the process of adopting or promoting an extremist belief system for the purpose of facilitating ideologically based violence to advance political, religious, or social change.
    (3) HOMEGROWN TERRORISM- The term `homegrown terrorism’ means the use, planned use, or threatened use, of force or violence by a group or individual born, raised, or based and operating primarily within the United States or any possession of the United States to intimidate or coerce the United States government, the civilian population of the United States, or any segment thereof, in furtherance of political or social objectives.
    (4) IDEOLOGICALLY BASED VIOLENCE- The term `ideologically based violence’ means the use, planned use, or threatened use of force or violence by a group or individual to promote the group or individual’s political, religious, or social beliefs.
    http://www.govtrack.us/congress/billtext.xpd?bill=h110-1955

  15. dead hobo says:

    debreuil Said:
    December 22nd, 2008 at 8:50 am

    One thing that has certainly happened is that while productivity has been increasing fairly rapidly, wages have been stagnating or worse. Normally that would cause at least a lot of labor unrest, more likely a bidding war for talent. This time though, the gains were given to people, but in the form of debt.

    reply:
    —————————-
    Excessive credit is a root cause of inflation, as in too much money chasing too few goods. The printing press is not the only form of monetary creation. Low credit standards are a symptom of excessive credit. Excessive credit creates rising prices for things that people can borrow money to get. It caused high real estate prices, high commodity prices, high demand for big ticked appliances, and more. Excessive and inflationary credit has no relationship to wages, unless you are a commission salesman and you are profiting from inflated asset prices.

    Nobody forced anyone to borrow to excess. Nobody can cry ‘It’s Not My Fault’. I took advantage of low credit and refinanced THE OUTSTANDING BALANCE ONLY on terms that just keep getting better and better (see previous posts for details). I didn’t go out and buy tons of crapola that still needs to be paid for and may not even exist any longer. As I said above, people are stupid. They believed that they were getting something for nothing.

    Rising productivity in a labor market that has high employment means employers have at least one bright spot to look at. High unemployment and fear for one’s job tends to calm a lot of labor unrest. Also, the idea that hard work improves one’s chances of not losing the current job motivates higher productivity for a while.

  16. Dan Duncan says:

    Damn…breaking out the Orwell–so early.

    Our backs are against the wall, but we’re going to give it 110%! But we got to remember— take it one day at a time. And of course…live in the moment—but don’t stop thinking about tomorrow!

    I figured, since it’s a morning of Coffee and a Cliche, that I’d offer a few more.

    Oh yeah…and one more:

    Hitler.

    There it is…just dangling, like a modifier from one of my sentences….waiting to be used by some creative soul as a vehicle to express one’s frustration.

    Who’s going to use it first? C’mon…Like a hard-core traveling groupie on her 4th go-round with the Def Leopard “Shock and Decadence” Mega World Tour…The Fuhrer Calls…”Use me! Abuse me! [Metaphorically, that is.]”

    An Orwellian Nightmare

    It was 1984, and Adolf Hitler, wearing a leather jacket, was water skiing behind a big boat called the “Orwellian Fascist”. Dr. Phil was driving the boat–and he was sporting a barbed wire tatoo. Pamela Anderson, with her barbed wire tatoo was there as well (thanfully, Tommy wasn’t). Madonna and Oprah were in the back discussing the Kabbalah. Madonna was speaking with a faux British accent and Oprah was hyper-articulating every G-Damn syllable as if our collective lives depnded on a clear transmission of her rotund profundity. There was a TV on board, and CNBC was televising an executive saying “At the end of day”—in reponse to “When will we see the bottom?” Hitler gave a Fonzirellian thumbs up, turned into the wake and jumped a great white shark…and then like one of those Panasonic television commercial, the camera pans back to illustrate that the vision was all brought to you by a color TV…because it is quite the cliche, in and of itself, to use Hitler and “jump the shark” references to call out someother cliche….And post-modernisnm gives way to post-hackneyism. LOL, LOL :)…Sorry, but I abolutely could not resist.

    Oh yeah…I almost forgot:

    Do you think that perhaps the arguments for or against this rather broad concept of “Regulation: Good or Bad?” is a bit more nuanced? Do you think the parties for and against “Regulation!”—for the most part are talking past each other?

    Or, do you really think the following:

    “What a terrible sham the no “regulation cry” has been. It is really a vote for no rules against illegal and/or criminal behavior . . .”

    C’mon….

    Actually, there’s one good thing, though: This indictment of “they are voting for anarchy” is really the opposite of a cliche’. Whereas a cliche is something overused to the point it has lost it’s intended force….”Regulation” used in this manner is purposely overused to obfuscate that it’s vague and diluted to the point that it has no force.

  17. Tom K says:

    “He who controls the language controls the political economy” . Such as Obama’s use of the word “investment”?

    Barry, whether you realize it or not, regulations are frequently used as a means to push political and social outcomes, not as a means to check fraud or flawed financial decisions. One could argue regulation actually helped get us into the current crisis.

    What we really need is a lot more transparency.

  18. I am referring to “radical deregulation” — allowing the players in the markets to operate without oversight, supervision, or reasonable constraints on leverage.

    I am not discussing ordinary regulations …

  19. bcasey says:

    I say we transparently ship them all to Mars.

  20. dead hobo says:

    [BR: this has nothing to do with protectionism -- it is about deregulating the banking and financial markets]

    and

    I am referring to “radical deregulation” — allowing the players in the markets to operate without oversight, supervision, or reasonable constraints on leverage.

    I am not discussing ordinary regulations …

    reply:
    ———————–
    If you’re talking about the speed limit on the interstate highway, OK by me.

    Otherwise, you say potato, and I say maybe potato and maybe not. Regulation always protects someone, some regulation is just more obvious about it. A clever predator would take your nuance and run a fleet of large trucks in the holes it could provide. Transparency gives the predator far fewer places to hide. Thus, I suspect you say ‘ordinary regulation’ but really mean transparency and a lack of nuance with regard to the kinds of regulation predators prefer.

  21. CPJ13 says:

    I think regulation is a slippery slope. ‘Kids will be kids’ and you can always count on those MBA’s to push the envelope as far as possible, especially when they won’t be held personally accountable for the results. On the other hand, I am wary of allowing congress to micro-manage privately held institutions down to the brass tacks. Where should the government draw the line between those institutions that honestly do threaten the public good if they go under – and those who are simply private corporations engaging in legitimate risk-taking with their own capital, in a search for returns? If we can find that line, that’s where we need to have this debate on regulation vs. deregulation. Clearly the first category must be more heavily regulated than the latter.

    I think I’m generally in line with Tom K’s opinion. I feel that if markets are transparent enough, individual investors can be counted on to act in their own-self interest enough that the markets will generally self-regulate. Bad products, funds and companies will see a dearth of investment, and well-run, properly managed entities will benefit. I think the problem we had here is virtually no transparency into SIVs, CDOs, and entire tranches of banks’ balance sheets. What we need to regulate is the reporting, the transparency, the marks… make it clear government won’t backstop any company whose equity shares are valued at more than .01, and let market participants sort it out.

    We’ve recently set a horrible precedent with these bail-outs… and I’m afraid that the terms weren’t punitive enough to prevent a recurrence of these excessive risks at some point in the future. However, I think we need to focus on more efficient regulation (enforcement), and not just MORE regulation (more rules).

  22. Transor Z says:

    Barry,

    Great reminder to not concede the terminology of discourse. I think it was David Halberstam in “The Best and the Brightest” who talked about politicians first starting to give non-answers to reporters’ questions at press conferences during the Vietnam era. A real milestone in the degredation of social integrity in the US. “Answer the question you want to answer.” a-holes

    Problem is, those glib talking heads on TV are so damned good-looking, confident and charismatic. Monkey see, monkee wanna be. It’s why many of the best minds make lousy talk show guests — they’re non-telegenic and are used to taking the time to rigorously develop their thoughts before speaking.

    I’m reminded of Letterman’s great come-back to Bill O’Reilly a while back, when O’Reilly was trying to bully him into a giving a “simple answer” to some question on Iraq. “Why can’t you give me a simple answer?” O’Reilly keeps yelling. “Because I’m thoughtful,” says Lettterman.

    On the question at hand, maybe you just have to separate “political” discourse from “technical” discourse when it comes to economic questions. People who only understand “regulation” in a political sense, with the partisan baggage that attaches, don’t really know a whole lot when you come right down to it.

    @dig1: Think maybe you meant “nihilistic” and not “existential.”

  23. KJ Foehr says:

    How can we appreciate the rule of law without also appreciating regulation? Regulation is intended to prevent people from doing what is unethical and often illegal. When regulations are enforced they prevent actions that would be criminal according to the criteria set forth in laws. It prevents these actions before an actual crime incurs, thus protecting both potential victims from loss or harm and potential perpetrators from punishment under the law.

    Antisocial behavior exists, selfishness and greed are part of human nature; therefore, we must have laws to punish those who harm others, and if we can also reduce the temptation and make it more difficult to harm or steal from others, why wouldn’t we want to do it? Is that not the logical thing to do?

    Is it not irrational to just rely on the laws to prevent it alone? There are laws against murder but that does not prevent the many thousands of killings that occur each year. And even when we catch the perpetrators and prosecute them under the law, that does not bring back the victim nor restore the murderer’s life that, in most cases, is now destroyed.

    It seems to me the proponents of completely free-markets and no government interference in people’s lives are like anarchists who each want to be a sovereign unto themselves; each wielding the power of policeman, jury, judge, and executioner. And that itself is anti-social. It would a Mad Max world, a degeneration of civilization, not an enlightened society that I believe we should be working towards, not away from.

  24. Anyone that believes the mantra that there are believers in free markets is a twit. So long as the money supply is a strictly controlled government monopoly, there is no free market. Even the most anti-regulatory Republicans loved the sort of monetary system regulation that allowed sprawling subdivisions of McMansions bought by people that couldn’t afford them. Alan Greenspan was supposedly an anti-regulatory accolyte of Ayn Rand’s, but he regulated the only thing that mattered–the monopoly on money creation–and instilled this bullshit belief into the entire country, not just R’s or just D’s, not just C’s or L’s, that the money monopolist can wave a magic wand and make everything right. Money monopolists that aren’t bound by some independent metric, like gold or oil, can only create illusions with their manipulations. The real stays real. The money eventually becomes so unstable its useless. We’ll know we’re there when the feds refuse to take dollars for the taxes they levy.

    Regulation, or law, is not a system of governing behavior as much as it is a system of parceling out property interests, i.e., contractual rights. It does not compel behavior as much as follow it. Run a ginormous Ponzi scheme, and when it is found out, the victims of your fraud have recourse against you (unless, of course it is a government run ponzi-scheme like Social Security). The problem is not that we don’t have enough regulations or laws. The problem is that we don’t severely enough punish criminal enterprises and their actors. If Bernie Madoff faced execution for his crimes, he might thought twice before doing them. As it is, all he faces is a few years in prison for destroying the wealth and lives of what appears to be thousands, enriching himself and his family enormously along the way. Do the cost/benefit calculus and it’s easy to see why he did it. All the toothless regulation in the world wouldn’t have prevented it.

    If instead, he faced the very real prospect of an anguishing death (perhaps stoning, or crucifixion?) he might have thought otherwise. I remember when a colleague of mine in the real estate business stole a million or so dollars through the vehicle of an escrow account in which he kept other people’s money for the purpose of real estate transactions. It turned out that he was trying to rescue his adult son from a drug deal gone bad. His son’s life was purportedly in danger. Now he might have thought otherwise about stealing the money if doing so had put his own life in danger. Instead, the judge gave him a whole year in a minimum-security federal pen, the “country clubs” for doing time, and reluctantly at that–telling him “there, but for the grace of God”.

    Um, no. The failure of God’s grace did not compel felony larceny in my colleague; the fact that we coddle these assholes did.

  25. callistenes says:

    Hmmmm?
    “double plus good.”
    Sure sounds like a bond/credit/swap rating to me!

  26. Moss says:

    A balance must be reached so that the public or common interests are not totally divorced from the private gain. The spirit of regulation is NOT to inhibit innovation but to ensure that the innovation does not come at the expense of the rest of society. While some of the regulations that remained on the books could have protected the system from the disgraceful behavior the political momentum was clearly biased toward the ‘radical deregulation’ that occurred. It should not be so easy for regulations meant to protect the system to be influenced by the ideological slant of the times. Effective regulations need to transcend any philosophy or orthodoxy so that the benefit to society is what matters. Effective regulations should be looked at as risk mitigation not some type of free market enemy.

  27. debreuil says:

    Everyone talks of losing ‘innovation’ in the financial industry… What innovation? We’ve had deregulation for a while now, and I only see innovative ways of gambling and cheating. Oh, I guess innovative ways of getting the taxpayers on the sidelines to ante up too. What a loss that is going to be when that all gets regulated away.

    There is really only one rule in the end — he who pays the piper calls the tune. If they don’t like regulation and oversight by the taxpayer, then they shouldn’t have taken our money. Financial industry opinions on the subject are now irrelevant.

  28. nbiehl says:

    If you want to open up the language, why not start with the definition of “regulation.”

    Is government the only agency that exercises control on markets? Why is the word “regulation” synonymous with government control?

    If a private agency uses all available means to avoid disclosing damaging information, aren’t they attempting to “regulate” the market in their favor?

  29. jason says:

    “language is a virus from outer space” – WSB

    and we all know how crafty a virus can be and how attempts to control it can lead to…ad nauseam

    Intent, honesty, transparency without thus there is only the inevitable…

  30. KJ Foehr says:

    The Curmudgeon Says:

    “Anyone that believes the mantra that there are believers in free markets is a twit.”

    I guess that means me. But it seems obvious to me that there are many people who “believe in” / have a free-market philosophy. So I’m not sure which mantra you mean.

    The presence of a central bank system and a fiat currency is a slightly different issue from free-market philosophy which implies no government interference with markets and business, but, in my mind, does not explicitly require a gold standard as a prerequisite.

    As far as your colleague goes, I think it demonstrates my point. I doubt any threat of punishment, except possibly death, which would probably be construed as cruel and unusual punishment under the Eight Amendment, would have stopped him from trying to help his son. Nor would it stop a man from stealing to feed his starving family. But regulations and strong internal controls implemented as a result of regulations, can and will in many cases prevent someone from breaking the law.

    Should white-collar criminals be coddled? Certainly not; they should be put in “general population” with the rest of the convicts. But exacting harsher punishments is inadequate to prevent future crimes, IMO.

  31. Pat G. says:

    What Does Regulation Regulate? That’s simple. Nothing. Regulations are nothing more than laws. And if laws (when broken) are not enforced what’s the point of regulations? Enforcement, punishment and setting examples are the only actions which give regulations teeth!

  32. “The presence of a central bank system and a fiat currency is a slightly different issue from free-market philosophy which implies no government interference with markets and business, but, in my mind, does not explicitly require a gold standard as a prerequisite.”

    KJ,

    I can define, in my mind, 2+2=5, doesn’t mean I’d be correct..

    do us a favor, trot that, quote above, over to http://www.mises.org , and see how it’s treated there..

    Curmudgeon isn’t making ‘a Gold Standard’, a prereq, either..

  33. donna says:

    And if this bubble hadn’t played out in the financial world, where would it have been?

    America has lived beyond its means for quite some time now. How we justified it all isn’t the problem or who benefited the most, legally or illegally. The problem is we don’t, as a nation, have the money to live the way we have. The world kept the game going too long because it was good for everyone. Now, we all get to pay the price, and, as always, those who benefited th emost won’t pay their fair share, thinking they somehow “earned” their ill gotten gains.

    Same as it ever was.

  34. KJ:

    “But exacting harsher punishments is inadequate to prevent future crimes, IMO.”

    Then what is? What regulation that slaps people on the wrist for making away with millions of dollars will prevent their theft? Do a simple cost/benefit analysis–slap on the wrist (ouch!) for a wad of cash–it’s easy to see why fraud is so prevalent. While I’m not sure my colleague would not have anyway done what he did when he stole a million bucks to save his son, I’m sure his calculus for doing so would have been different had he thought he faced a punishment several degrees more severe than a year in a federal country club.

    Stealing money, whether for a good cause or bad, is bad. Perhaps the starving man trying to feed his family steals from another starving man also trying to feed his family. This is the reality of theft–its costs always fall to those least able to bear them. Which starving man deserves the protection of the laws and regulations of a civilized society?

  35. Pat G. says:

    Exacting the “full” measurement of the punishment due for breaking a law can at least act as a deterrent. Doing nothing, is not an answer.

  36. KJ Foehr says:

    Mark E Hoffer Says:

    “I can define, in my mind, 2+2=5, doesn’t mean I’d be correct..”

    Yes, but you are free to define it that way, and so am I. Correctness, like truth, depends on perception and interpretation of the “facts”; it’s kind of like a libertarianism.

    Free-market adherents, like religious believers, have the unknown on their side. How can you disprove the unprovable? They can argue that the failure is not the fault of the philosophy because we have never had a perfectly free-market complete with gold standard and no central bank. Thus, I can never convince you or others that laissez-faire, free-market capitalism is not sustainable. And likewise, without data to support that it is sustainable, you will never convince me or others who do not believe that philosophy.

    “do us a favor, trot that, quote above, over to http://www.mises.org , and see how it’s treated there..”

    Ha! No can do! I may be a twit, but I am not foolish enough to walk in that lion’s den. Arguing with ideologues is like arguing with religious fundamentalists – a complete waste of time.

  37. Brett Tibbitts says:

    Barry, it seems to me that this article greatly overstates the debate. Who are the people that really advocate for NO regulation of the free markets? Who really advocates for NO interference with innovation? Who really advocates NO stifling of incentives?

    I think some have tried to simplistically to reduce the Bush administration to these thoughts, but I don’t think the record really supports the oversimplification.

    Sarbanes Oxley is a very good counter argument. And a good counter argument for the kind of disastrous leglislation that Congress enacts when things go wrong.

    There were plenty of laws already on the books to prevent Enron. They just weren’t enforced. And by the way, they weren’t enforced by the Clinton administration or the Levitt SEC against Enron just as they weren’t enforced by the Bush administration.

    Another example is of course Madoff. Now, we will have to wait and see, but I bet we will end up finding that there were plenty of clues of Madoff fraud ignored by the Levitt SEC during the Clinton administration also.

  38. KJ Foehr says:

    “Which starving man deserves the protection of the laws and regulations of a civilized society?”

    All of them. And all of them deserve the compassionate help of their fellow citizens to make stealing food unnecessary.

  39. Unsympathetic says:

    You people DEFENDING the Republican scam make me sick.

    This is not a black-and-white decision. This is not about “Either we have law or we don’t” – and quite frankly, the remote assertion that somehow “less regulation” will result in good things for society is a tenuous link at best. Remember that EACH time you push forward the idea that regulation is bad, you are personally supporting the following business plan:

    1) Lie.
    2) ?
    3) Endless riches!

    Removing the leverage limit of 12:1 was a horrible idea, because leverage works as effectively on the way down as on the way up. Removing the original regulations on loan qualification was a horrible idea, because loans that can’t be paid back are a tremendous societal burden. Fun fact: The original CRA from Carter’s day had over 120 regulations in the bill to limit bad loans, including requirements of 20% down, 28% front/36% back DTI, etc.. and all of those were removed by Gramm’s acolytes.

    Et cetera, and so forth.

    Adam Smith himself described the evils of a truly free market. Money makes people do terrible things – and the societal justification for governmental regulation is to prevent those very actions. The market is NOT efficient. The market is NOT self-correcting. Human beings are NOT rational.

    Proper regulations are difficult, yes, but they are essential to a functioning society.

    As for Republicans, well, I’m sure we’ll find a way to live without them. I won’t miss any of their crackpot theories.

  40. KJ:

    you go with: “Yes, but you are free to define it that way, and so am I. Correctness, like truth, depends on perception and interpretation of the “facts”; it’s kind of like a libertarianism.”

    personally, I’ve never seen the libertine ethos conflated with liberterianism, but, I guess that’s what new days are for..

    http://www.thefreedictionary.com/libertine

    though, maybe worse, with this: ““Which starving man deserves the protection of the laws and regulations of a civilized society?”

    All of them. And all of them deserve the compassionate help of their fellow citizens to make stealing food unnecessary.”

    Don’t you, then, leave open the possibility that ‘all that steal’, are, in their view, ‘starving’(?) and, thereby, deserve our ‘compassion’?

    past that, your characterization of mises.org is so off, as to tell of your lack of experience with it..

  41. KJ Foehr:

    “They can argue that the failure is not the fault of the philosophy because we have never had a perfectly free-market complete with gold standard and no central bank.”

    The point I’m making here is that the source of roughly a decade (perhaps two) of illusory economic growth that was unsupportable by fundamentals was the money supply tinkerings of a federal reserve system run by a fool. He claimed to believe two contradictory impulses at once–1) that free markets are the best of economic regulators, and 2) that money supply manipulations by the government can get a “free” market to do its bidding. One or the other must be correct. Which is the pre-eminent power–the vast forces driving markets, whether considered “free” or unfree, or the government? In my assessment, the government is powerless in the face of vast economic forces such as culture, demography and international wage arbitrage. For example, no matter what Japan’s government does, no matter how free or unfree is her economy, economic growth will not sustainably return until she arrests her population decline, and it’s not clear what measures she could undertake to accomplish that end.

    A similiar situation obtains regarding the American wage earner relative to his contemporary in one of our most important trading partners–China. American wages must decline and Chinese wages must increase until there is a relative parity between the two–if we are to continue as tightly-interlinked trading partners. Nothing either government does or can do (except imposing harsh and harshly-enforced tariffs) can change the compulsion for wage arbitrage. Our half-cocked way around the deflation that would have otherwise prevailed due to the wage arbitrage in the early 00′s was to inflate everything, including houses, of course. This presented the illusion of demand, fueling an inflationary spiral in the housing market. American workers did not take a cut in nominal pay, as they should have. Their pay just got less valuable through inflation. It was a ruse by the fed that ultimately backfired.

    Now that the inflation-fueled demand has collapsed, as it always does, real wages are nominally falling–either because there is no job, or no overtime, or no 401K match, or the rate has been reduced.

    We now find ourselves exactly where we would have been anyway, had the feds not believed they could money-supply their way out of the reality facing our economy. Yet, still, we refuse to acknowledge that nothing that was done did any good, and instead we give over even more of the economy to the same idiots that fecklessly attempted to delude us into believing that trees can grow to the sky, if only they are properly fertilized with the right amount of dollars.

    I’m not exactly sure what a free market economy would look like. I’m quite sure, though, that it would not include a Federal Reserve System attempting to serve the twin masters of full employment and stable prices. If all the Fed has at its disposal for accomplishing its twin goals is money, its only hope is to accomplish stability in prices, which must necessarily be measured by some fungible, internationally-traded commodity product or products, like gold or oil. Full employment will come with stable prices. The only problem is that the stable price for labor might be less than is politically tenable, and the Fed is a political animal through and through.

  42. bcasey says:

    I think I’ve mentioned this before, but I like the idea of radical regulation. Punishment is just regulation applied after the fact. I don’t think anyone has argued that the crooks didn’t know what they were doing. They may have excused their actions as being within the law, but that doesn’t mean laws can’t be rewritten, and applied retroactively. I’ve seen it happen in these last few years to cover the butts of some cia and nsa agents with a fondness for good old american style bondage and torture. If you want to get them to think about consequences, I think that would be the proper precedent to set, it might be legal today, but then it might not be retroactively.

  43. KJ Foehr says:

    “personally, I’ve never seen the libertine ethos conflated with liberterianism, but, I guess that’s what new days are for..”

    To me it is less about being promiscuous and unscrupulous, and more about free-thinking. But, as you already know, I am no expert on libertarianism. I just see complete free-thinking as a logical extension of complete individual freedom. But 2+2=5 is not a good example of it; I was more referring to my assertion that the free-market philosophy can be adhered to and implemented to such an extent that it can cause serious problems, as the current situation, even without a gold standard and with a central bank.

    To which free-marketeers would respond that that is precisely why it is not the fault of the free-market, because we never had one, and thus the argument must end, for as I said before, there is no example of such an economy to make a judgment by comparison.

    And

    “though, maybe worse, with this: ““Which starving man deserves the protection of the laws and regulations of a civilized society?”

    All of them. And all of them deserve the compassionate help of their fellow citizens to make stealing food unnecessary.”

    Don’t you, then, leave open the possibility that ‘all that steal’, are, in their view, ’starving’(?) and, thereby, deserve our ‘compassion’?”

    I am surprised you would find advocating compassionate help “maybe worse”. I am not going to debate the efficient implementation of welfare because I don’t know how to do it perfectly. But if such social safety nets are in place, then it precludes “the possibility that ‘all that steal’, are, in their view, ’starving’”, and starvation is eliminated as a possible defense for stealing.

    and

    “past that, your characterization of mises.org is so off, as to tell of your lack of experience with it.”

    You are right. I was assuming you wanted to throw me as red meat to the lions. But if my assumptions are wrong, I will spend some time there, reading.

  44. Transor Z says:

    “Sir, if you would debate with me, first define your terms.”

    Regulations are rules created by government agencies, pursuant to legislative enactments, that have the force of law.

    Here are some examples of regulations which I think are good:

    1) FDA maximum limits on bug parts per million in peanut butter;
    2) Restrictions on where hazardous nuclear waste can be stored;
    3) Framework providing that drugs be tested in clinical trials prior to marketing.

    Because I’m not smart enough to NOT go with the sports analogy, that’s what I’ll do. Play with the “take the referees off the field” analogy a bit.

    Imagine a game between the Dallas Cowboys and Baltimore Ravens, a bunch of fine upstanding lads. Take away helmets and pads. And uniforms. It’s shirts vs. skins. The ball is unregulated so it’s… a human skull. One thing the teams agree upon is that they will play a game to see how many times one side can cross a line carrying the skull. The one who does it the most wins. The winning team splits a pot of gold.

    Of course, there is no agreement as to means. And after a bit it becomes unclear whether the original human skull is the only one that “counts,” or whether a new one can be fashioned in-game from the decapitated head of an opponent. For that matter, can several skulls be in play at once or only one?

    Regulation time limit? Time outs to collect the dead and wounded? How many men allowed on the field at once? Can the skull be thrown? Kicked? Who identifies and adjudicates rule infractions?

    Without regulation, there is no “game.” Regulations are an equalizer that put a name on the game and impose some constraints on behavior that maximize benefit to all. Regulations create a framework of trust that alleviates (somewhat) the Prisoner’s Dilemma problem in game theory. Without it, all rational participants in a competitive public activity will “defect” and move to radical self-interest over time.

  45. Darmah says:

    Phew. Some heavy duty comments here. I just have a couple.

    On the subject of Orwellian use of language, as number one, best instance I nominate the change from “Department of War” to “Department of Defense.” So insidiously clever it made the military-industrial complex an easy thing to swallow.

    Libertarianism, the free market, whatever you call it – it doesn’t work. It’s based on a false premise. It’s not really possible to create given current state of human societies and things would go to hell in a handbag pretty quickly if you could. (The current “Libertarian” party in the U.S. is a good example — it ain’t really libertarian. Neither is Ron Paul.)

    Frankly I’m beginning to think this is much more a class thing, rich / poor; have / have not. George Soros has come closest here for me — “There is a common interest. And this belief that everybody pursuing his self-interests will maximize the common interests or will take care of the common interests is a false idea. It’s a suitable idea for those who are rich, who are successful, who are powerful. It suits them to justify you know, enjoying the fruits without paying taxes. The idea of paying taxes is an absolute no-no, right?”

    Lately tho I feel like Donkey — “Blue flowers..red thorns..blue flowers..red thorns..blue flowers..red thorns. This would be so much easier if I wasn’t colorblind!”

  46. AGG says:

    Barry,
    Yes, of course corrupton of language is key to manipulation of thought. Taking bellicous, predatory, henious practices and sanitizing them by giving them smoothy names is what modern PR is all about. Take that innocuous phrase, “MARKET SHARE”. Share? You’ve got to be kidding. Businesses don’t share. They scrap and fight for every bit of the action. The correct phrase would be MARKET TAKE. But then, that sounds too much like a mafia term. But it really is all about take. Nobody is “sharing” a goddamn thing. The crux of the matter is the constant, unceasing desire of ambitious people to control other people’s actions. Think for yourself and define your terms accurately and you won’t have a problem. Define yourself by ideology or some “ism” and a whole package of smoothy bullshit terms from that particular “ism” will cloud your mind and lead you to make many gross errors of logic and reason for the benefit of those that push that particular ideology or “ism”.

  47. AGG says:

    Barry,
    I suggest to you and all commenters here try this thought exercise: Imagine that every person in the world is born with a force field. You can’t hurt them in any way. If you give them poison to eat the force field will neutralize it. A thousand people cannot hurt an individual person. No one can stop anyone from taking anything such as food, etc. Now THAT, is a free market. No libertarian would agree to it. As a matter of fact, no person with a racial, societal, class or monetary advantage would like that idea. Humanity without responsible hierarchy is chaos. The only thing that works is rule based society where everyone has to obey the same rules. Fat chance. But we can dream.

  48. AGG says:

    When someone starts to rave about the free market, I sometimes wonder if that’s another Orwellian term. Why don’t they call it “Cheapest Market”? After all, nothing is free at the market. So if, theoretically. the best (lowest, cheapest, etc.) prices for goods and services can be obtained at an unregulated market, they should call it the Cheap Market, right? Did you know that some libertarians call themselves anarchists? They don’t talk about that machine gun they have in their basement and the ammo. Yep they want a “free market” or maybe a free-for-all with their machine gun? Alpine slopes as level playing fields and all that sort of thing. We get it.

  49. pvd says:

    In response to Transor Z above:

    What we have seen the last few years hasn’t been a case of no rules, it has been a case of bad officiating. In a football game the refs keep the players honest, but who keeps the refs honest? The fact that their decisions are made in front of everyone at the game, watching on TV, and recorded to be played over and over. A mistake here or there is understandable, but what if the ref were to continue to refuse to call any penalties at all against one team regardless of their infractions of the rules. ?

    So there is no game without rules, but transparency is absolutely necessary to keep the regulators honest.

    It appears that finance is mostly about one actor obfuscating real risk to convince another that it’s not as risky as it really is.

  50. bcasey says:

    Tanzor Z, I’m not a football fan and probably not smart enough on the subject to comment believably but I do like your analogy. The problem I see in our current scenario is that the stealing is unregulated but the fashioning of new skulls is severely regulated. Without the ability to make new skulls it is not really a free market, and how are free markets supposed to work without supply and demand?

    Back to the original subject, I loved George Orwell’s 1984, as well as David Bowie’s Diamond Dogs, But for hard core Sci-fi disfunctional future literature John Brunner is the best.

  51. KJ,

    this: “I am surprised you would find advocating compassionate help “maybe worse”. ”
    wasn’t the point I was trying to make.

    I was saying: maybe worse would be that: any thief could claim to be starving, if given : “Yes, but you are free to define it that way, and so am I. Correctness, like truth, depends on perception and interpretation of the “facts”” as the set point.

    Transor Z’s point-out: “Sir, if you would debate with me, first define your terms.”

    Is what’s at play..

    past that, I do suggest you do some reading @ http://www.mises.org I’m fairly sure you’ll find that your assumptions are mistaken..

  52. Jojo99 says:

    KJ Foehr said December 22nd, 2008 at 12:47 pm “… But regulations and strong internal controls implemented as a result of regulations, can and will in many cases prevent someone from breaking the law.

    Should white-collar criminals be coddled? Certainly not; they should be put in “general population” with the rest of the convicts. But exacting harsher punishments is inadequate to prevent future crimes, IMO.

    Regulations and laws are worthless when they are not strongly and consistently enforced. The only sure way to discourage disobedience of laws and regulations is to make the penalties severe enough that few or [hopefully] none would want to risk the consequences if caught.

    Though not palatable to PC America, for financial crimes, in my mind that would mean taking away ALL their assets in any form AND public punishment, ranging from the stocks to the guillotine (Madoff, etc.), depending on the severity of violation plus mandatory prison time (if still alive). They would go to a regular prison also, no white-collar paradise where they can lounge around and play tennis or golf.

    And their punishment must be put on a fast track so that it occurs soon, while their deeds are still fresh in the minds of the public.

  53. scepticus says:

    I’m going to offer the suggestion that while all this debate re markets, regulation, ideology etc is the flavour of the moment, it’s worth taking a step back and considering the Big Picture (the concept, not the blog).

    Economics as a school of thought and a social science has existed for a blink of an eye in human historical terms. Its existence has also happened to coincide with the final stages (probably) of an upward stage in a secular population cycle. These cycles show up with a period of 200-300 years, with the upward stages characterised by stability and relative prosperity and the downward trend in population characterised by instability and declining prosperity. The upward trend in population density reverses once the population exceeds the carrying capacity of the environment – which in turn is defined purely by the population density and the technology available to extract resources (note this is not an ‘environmental’ or ‘ecological’ argument, simply a long standing fact of human existence).

    During the upward trend of increasing prosperity it is generally the case that adding another human increases everyones prosperity via economy of scale and additional specialisation. During the downward trend, adding another human actually decreases prosperity. How valid will currently ‘accepted’ economic models developed during a secular bull market in population and human utility that has lasted 500 years be once that market turns bearish?

    During the downtrend, which may well have begun already, the study of the application of power on a vast scale (see machiavelli, confucius) will be increasingly more relevant than the study of economics and markets. The simple truth is that what the anglo-american governments decide to do or not to do regarding market regulation is going to have little effect on the way the world works in 50 years time.

  54. mikaeel says:

    Regulations are for the people who don’t have connections. If you’re connected to the regulators you can do want you want as long as your competition, the regulators adversaries or the general public doesn’t find out.

  55. bondjel says:

    I984 is great but if you haven’t read it you must read Orwell’s classic short essay “Politics and the English Language”; you owe it to yourself. Here it is on web free:

    http://www.mtholyoke.edu/acad/intrel/orwell46.htm