Regulation: The Cause, Not the Cure, of the Financial Crisis on Feed 44

C4SS Feed 44 presents “Regulation: The Cause, Not the Cure, of the Financial Crisis” from the book Markets Not Capitalism, written by Roderick Long, read by Stephanie Murphy and edited by Nick Ford.

The grain of truth in the otherwise ludicrous statist mantra that the financial crisis was caused by “lack of regulation” is that when you pass regulation A granting a private or semi-private firm the right to play with other people’s money, but then repeal or fail to enact regulation B restricting the firm’s ability to take excessive risks with that money, the ensuing crisis is in a sense to be attributed in part to the absence of regulation B. But the fatal factor is not the absence of regulation B per se but the absence of B when combined with the presence of A; the absence of B would cause no problem if A were absent as well. So, sure, there was insufficient regulation, if by “insufficient regulation” you mean a failure on government’s part to rein in, via further regulations, the problems created by its initial regulations.

So if the problem is caused by A without B, it might be objected, why must we adopt the libertarian solution of getting rid of A? Can’t we solve the problem just as well by keeping A but adding regulation B alongside it? The answer is no, because central planning doesn’t work; when one responds to bad regulations by adding new regs to counteract the old ones, rather than simply repealing the old ones, one adds more and more layers between decisions and the market, increasingly muffling price-system feedback and courting calculational chaos.

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