The Animal Spirits of Regulators

Nick Gillespie | September 28, 2009

Over at National Review Online, Kevin Williamson makes a good point about the motivations of financial-sector actors and regulators:

The fallacy implicit in the conventional argument for more robust financial regulation is that animal spirits—the whole menagerie of greed, panic, pride, thrill-seeking, irrational exuberance—distort only profit-seeking activity. But they are at least as likely to distort efforts to regulate profit-seeking activity. In truth, the animal spirits of regulators probably are more dangerous than those of Wall Street sharks: Competition and the possibility of economic loss constrain players in the marketplace, but actors in the political realm have the power to compel conformity and uniformity among those under their jurisdiction. The entire economy is yoked to their animal spirits, and the housing bubble was a consequence of that fact. We have bred an especially dangerous hybrid creature in the "too big to fail" private corporation, the bastard offspring of a union between Wall Street's animal spirits and Washington's....

Which isn't to say that the regulatory enterprise is inherently hopeless: There are better and worse regulations, and there are more intelligent and less intelligent applications of them. But our legislators and regulators are much more likely to be swayed by their resentment of Wall Street paychecks than by well-reasoned analysis of our present regulatory defects, and we will solve "problems" such as CEO pay that are not, probably, problems.

Whole piece here.

Comments

|9.28.09 @ 9:19AM|#

Believing regulators are as merely human as the regulated and vulnerable to the same psychological faults as the cattle is racist.

Xeones|9.28.09 @ 9:24AM|#

Johnny Longtorso's mom is racist.

|9.28.09 @ 9:28AM|#

I love how liberals are convinced that evil capitalists will game the free market to their unfair advantage but somehow won't be able to game government regulators and Congress.

Mango Punch|9.28.09 @ 9:56AM|#

Thank God for Hockey! NHL regular season starts this week!!

Mango Punch|9.28.09 @ 9:57AM|#

Sorry, I meant to post that under "Monday Fun Link", trust me, it makes sense in there.

twodays|9.28.09 @ 10:17AM|#

Makes a lot of good points but the financial services industry is half in the public sector already. When you know that you can get huge bailouts and massive government support I don't really see how you can still claim to be part of the free market.

JB|9.28.09 @ 11:17AM|#

Those in government are there for two reasons:

1. So they can give perks and cut special deals for their relatives, friends, and cronies.

2. Because they have a lust for power.

They are sick, sick, sick fucking fetuses.

Alan Vanneman|9.28.09 @ 2:43PM|#

The notion that the government, rather than the private sector, caused the recent near-collapse of the global economy is a dangerously convenient meme for libertarians. If they keep clinging to it, they'll make that guy who wouldn't apply for a driver's licence (sorry, I've forgotten his name), look like a centrist.