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Investment Analysis Clubs / Macro Economic Trends and Risks


Subject:  Re: “This Time it is Different” Date:  10/5/2012  4:21 AM
Author:  AdvocatusDiaboli Number:  405325 of 538881

And those regulations were?

MC approaches any given economic problem with the fixed assumption that whatever government does, it must be making things worse.
Also, he makes an elementary mistake.

In any industrialized economy, the government is intervening in every economic activity to some degree. It taxes, regulates liablity, emissions, disclosure, it standardizes, builds or regulates infrastructure etc.
(If it didn't do that, no modern industrialized economy would have evolved in the first place.)
Because of this, anything that goes wrong in the economy will have the government's fingerprints on it somewhere, and if you want to, you can always conclude that the government caused the problem.
MC wants to reach that conclusion very much and inevitably does.

MC looks at the specific way the financial sector blew itsself up and concludes that, because that specific way was influenced by regulation and government intervention, that means regulation and other government intervention caused the banks to blow themselves up.
That is not the case, however.
The truth is that the banking system is ALWAYS evolving towards blow-up, as (during normal economic times) taking more risk leads to higher growth, and so the fools among the bankers have a competitive advantage until there are too many of them, which destabilizes the system and causes a blowup.

The government merely shaped how exactly the banks blew themselves up, it didn't cause them to do it.

In a free market, cyclical bubbles and banking sector blowups are indeed the normal state of affairs, and they cause so much damage that they have to be prevented, almost regardless of the cost.
Certainly a return to something akin to the financial sector regulation of the post-Depression era would be a small price to pay.
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