I was going to mention the same examples (UL, etc).
Regulation is not intrinsically good or bad. Each regulation can be good, indifferent or bad. There are many industries and sectors which self-regulate pretty well and others which self-regulate pretty badly. There are also some which are well regulated by the government and others which are badly regulated by the government. This has ZERO to do with freedom of the market.
In general terms though I would say over-regulation tends to be bad and worse than under-regulation. The results of over-regulation tend to be inefficiencies and high costs which just continue indefinitely while the results of under-regulation can be crisis which immediately create the forces to create regulation to prevent a recurrence.
Many people believe the FDA is a case of over-regulation which just increases the costs of developing drugs. On the other hand I suppose the cost may be worth the prevention of something like the thalidomide case.
Why? A 1/2 hour before you made your post, I explained that these were not an example of free market self-regulation. UL is a an example of government-backed regulation.
I’m probably getting farther and farther away from my knowledge of what Friedman said at one time or another. So I’ll have to stop here.
But the last sentence of your first paragraph - and the first sentence of the second paragraph - is a bright, shiny example of the logic that explains why so many citizens choose to disempower themselves in today’s society. Which is distressing to many libertarians.
It’s too complicated for me to understand. Therefore, I want to toss the keys to a government bureaucrat with absolute power, completely different incentives than me, no accountability for poor performance, and who will be a target for special interests to make unilateral decisions for me. And for everybody else. Even if the other people don’t want it.
And Banking Failure = Information Asymmetry is a new one for me. Why isn’t it a failure of government oversight and regulation?
Well, that is the market in operation mate, a rational choice on the part of consumers to delegate painful, time consuming and irritating and/or expensive processes to government.
Best not to be a purist libertarian, insofar as the reality of mass preferences do not meet the political (versus economic) precepts of said philosophy. And likely never, ever will. Recipe for constant grinding disappointment, sort of the photo negative of the Bolshies in the end.
Of course, it does seem you overstate the negatives on bureaucrats, however. Lighten up.
Depends on one’s analysis in the end. Much of the crazy credit stuff was going on the unregulated “parallel” credit sector, or in the very lightly regulated reaches of the regulated areas, such as the I-Banks.
While one can advance an argument that somehow regulation incented banks to play games to reduce regulatory capital costs, that really doesn’t seem terribly satisfying in the end insofar as the players that blew up seem to have largely taken on excessive risk in a ill-advised short term search for maximum yield, and much of the failure in the risk management was on excessive reliance on market based models that had been pushed well beyond where their assumptions actually stood up.
I frankly don’t find a terribly colourable argument that this was the “fault” of regulators.
Information asymmetry really looks rather more colourable in the end here, as the regulatory argument smells of ideology and one has to advance 3rd and 4th order effects, whereas the information assymetries between the market segments pretty much stand out, and don’t need reaching behind the head to scratch the ear arguments.
They are welcome to delegate such things if they want to. They can call up, or email, the FDA every morning and ask them for their advice on products if they choose to do so.
It crosses the line when they also want to delegate those things for me.
Emphasis added:
I rather question such a bold assertion. Sometimes yes, sometimes no.
In the instance of drugs and food, given the understand aversion of the average consumer to death, permanent loss of health, etc (perhaps a bit of the generic bias against loss versus gains), asserting the cure is worse than the disease strikes me as rather ideological.
Representative Democracy mate, afraid its what you have to live with. Not as good perhaps as purist theory, but the human condition is imperfect.
Now, I know some entirely unregulated markets for you to try out your drug preferences in. They’re not holiday destinations, but should you want to be free of the perceived evils of the US FDA, etc., well, they’re there.
Friedman was correct about most markets for goods and services, and those markets function pretty rationally. But consider the financial markets 9like the onces for derivatives and “swaps”): information is hard to find, and there are few sellers. Because of this, the value of the product is hard to asess. this is what ultimately caused the collapse (of the mortgage-backed securities markets). What was being advertised was not what was being sold.
The problem with that idea is that markets are, in fact, rational and amoral. There would develop a perfectly rational conflict of interest that would drive the FDA to define ratings based on what maximizes their revenue, not on what is best for society.
This is similar to what happened with the mortgage backed CDOs. These financial instruments are all rated by private companies - Standard & Poor’s, Moody’s or Fitch Ratings. Their ratings are often clouded by client relationships.
IMNAE, but it seems to me that there are two major things missing from the classical model:
[ol]
[li]It breaks down once emotions get involved. Markets are usually very efficient, but one emotions get going (good or bad), they become more complex and the model breaks down. Panic or euphoria cause agents to lose their rationality. Which brings up my second point:[/li][li]Most actors in the market are agents. A “direct” market (e.g. hungry people buying apples from orchard owners) are very rare. Not only do you have bankers and brokers, but CEOs and boards are also agents. Consider a CEO with a contract that gives huge bonuses for quarterly profits and golden parachute. His rational decision would be to drive up the quarterly numbers however he can for a few years and then when if the whole thing comes tumbling down, exit with his gains. That him significantly more than if he bases his decisions on the best interests of the company.[/li][/ol]
One other thing to consider is that while regulations can warp markets, so can other things. For example, our current tax policy rewards buying and selling stock over the middle period over either holding stock or selling in the short term. Capitol gains of over a year are taxed lower than dividends or gains of less than a year. This encourages companies to do things to raise stock prices (e.g. stock buy backs) instead of paying dividends. This has shifted stocks from sources of long term income to medium term bets. Stockholders rational interest is for stock prices to rise in the next few years, not steady profits.
Disclaimer: I know that profits and stock prices are linked, but the link is not unbreakable as the dot com bubble showed us.
Yeah, I don’t know much about economics. Think of this as a chance to edumacate me and others. Lemme see if I get this right:
We should not confuse the Big-M Market and the actors who make it up. Actors are acting rationally when they say, “The devil take the hindmost! I’m grabbing all I can.” Makes sense, and that is how a reasonable person would expect a bunch of Type As to behave. But that rational actor is not acting in an altruistic manner and can only be balanced by other actors grabbing as much as they can from him and each other to leave the Market stable, or appearing stable when it is a seething pack of hyenas tearing apart a kudu carcass and each other. But it is obvious that the system is not actually stable and can be easily knocked off balance if some hyenas get bigger or there is a dip in the amount of kudu carcass available. A stable system would have smaller spikes and troughs.
My understanding of Friedman’s model of the Market is that it is stable as long as internal and external forces stay stable, and self-correcting as long as the changes in those forces remain small. However, it does not take into account either large changes in the forces, like wars or changes in commodity prices, or actors who, acting completely rationally, find a way around the ecology of the stable system for short term gain. Either can take kudu from the rest of the hyenas, or make the rest think there is less kudu, scaring them into irrational behavior, like selling off stock in Kudu Inc and other companies that, in a rational world, should not be that cheap. This feeds on itself and the Market spirals downward until Kudu Inc really is as worthless as the hyenas thought it was. The Market behaves like a living creature, not a gyroscope, and uncertainty, such as which and how many of the mortgages backing mortgage-backed securities really are bad, can make its actors, acting seemingly rationally to minimize their individual, short term damage, cannibalize the system.
Sure, eventually the Market may stabilize on its own, but since its behavior affects everybody, including people who do not realize how much they depend on its stability and cannot wait for a natural recovery, a government that does not wish to be overthrown in a revolution will attempt to prevent complete collapse.* So the needs of the many force an abandonment of the Friedman model in real life because the Market cannot practically be allowed to follow its “natural” course.
I understand this goes against the beliefs of true libertarian free-marketers, but most people who give it any thought dismiss them as sociopaths.
This point is quite questionable. The real question is one of marginal utility. People do not really want to be infinitely rich, because they want to use some of their time for other things they value, like spending time at the beach, blogging, or whatever. The value of their next moment might be much, much larger than anyone can reasonably provide; this is called “playing video games,” though it goes by other names as well.
What I think personally ruins the issue is people acting on behalf of corporations. Corporations do not have leisure activities. Corporations don’t play golf or Halo 3, they don’t climb mountains or vacation in Europe. People acting on behalf of a corporation, therefore, would not make the same estimations as a prototypical rational man. People may be greedy, but desire is for more than dollars. This is far less true of fictions like corporations, and the incentives that drive their proxies.
I don’t know what you mean by small. You can plan for some things, to some extent, like buying insurance on your house. If a house fire happens, this will be a “big” force. A company might account for the risk of foreign nationalization, but this doesn’t mean that it won’t take a massive hit anyway when Che gives Chevy to the Chicos. Big things really happen in real life, even when you try to hedge your bets.
It absolutely takes these things into account to the extent it can. Obviously it is a world of limited information, but perfect information is not necessary for stable strategies.
Which is where all of these arguments eventually circuit-to-ground. And spark a good, useful discussion of citizen’s rights under the Constitution.
I do not believe that 51% of the voting public, even if acting via Congressional authority, should be able to incrementally take away rights and freedoms that are protected by the Constitution.
We’ve gone around a bit on the FDA in this thread, but it also applies to many other threads on the SDMB. Taxation. Free trade. Public education. Licensing for guilds such as doctors, plumbers, elevator and fire-extinguisher inspectors. Bailouts of horribly-run auto companies.
You can toss aside each argument with ‘Representative Democracy’ and assert that as long as 51% votes for something via referendum, or Congress asserts their authority to do X, the rest of us have to go along with it.
I would disagree. Take a look at what is happening with Prop 8 right now in California and see what slightly-less-than-50% of the public feels like when they think some of their basic rights have been taken from them.
And as long as nobody puts up too much of a fight, things will continue to go this way. And we will all get what we deserve if that is the case.
Well, I am not terribly interested in American Constitution Fetishes, but in any case, I think a comparison between the mere existence of your FDA and the banning of marriage for same sex couples borders on absurd.
Thaler prides himself on not being as mathematical as the average Chicago economist. He’s in GSB, not the Economics department, by the way.
Equating a regulatory system, which is what DerTrhis was discussing, with a command economy is rather absurd. Drug regulation is not the first step on the slippery slope to Communism.
Supporters of rational markets misuse the term rational as much as opponents do. sailor is implying that each player has full information, coming from having the time, resources, and intelligence to collect information on each purchase decision. That’s a common right wing fantasy.
I don’t think Friedman was politically motivated, but it seems that assuming rational players to make the models work soon becomes the contention that regulation is unnecessary because there are rational players.
Let’s consider what would happen with a privatized drug regulatory system.
First, even among honest regulators, requirements for proving efficacy will diverge. It’s plenty expensive getting FDA approval today - doing it for n regulatory agencies will make it even more so.
Second, the companies wanting to maximize profits will quickly form their own “regulatory” agency, which will rubber stamp approvals for their drug, with no doubt authentic looking tests.
In the deregulatory fantasy world, each consumer will check on ratings of each private regulatory agency and make decisions accordingly. Unfortunately, consumers actually have to work and are not likely to have the time, especially when the bogus ones are cheaper. Even if they read the details, will they understand them? I can see the holes in the claims by the fake boner pill company ads, but how many people have a science education? I doubt I could read and understand the full report.
When we start, people will assume that medicine is safe in the future because it was in the past. I worked for AT&T during deregulation, and about a year after you were able to buy a phone our sales went up again. The reason was that the average consumer assumed that all phones would work forever, and thus bought on price. They soon discovered that cheap phones were junk, and came back. That’s fine for telephones, not so fine for medicine that will either prevent a heart attack or won’t. Not all companies who will sell problem drugs will do it out of malice. Plenty of drugs get rejected when submitted with the best of intentions and with total scientific honesty. There is no way of telling, without expensive and time consuming clinical trials, if a drug is safe or not.
So many of our problems come from people deregulating and saying “what can go wrong.” See Greenspan’s testimony. And I might remind you that the Preamble talks about “promote the general welfare.” Privatizing drug approvals will not do that.
That’s a good point, and , to add to it, corporations can distort the economic climate for its employees. It appears that brokers were incented by their employers to drive people to risky loans - bad for the borrower, but profitable in the short term for the broker and the lender. Every person in the chain that led to this disaster, operated on a basis of improving their short term interests.
I’m curious about how the fans of deregulation propose that this situation could have been averted without effective regulation. When a good regulatory regime is in effect, there are no problems, and so it is reasonable that those philosophically opposed to regulation claim it should be relaxed. After all, you don’t need to spend money fixing your roof when it isn’t raining.
The "full information"argument is a straw man. I do not believe anyone has “full information”, much less some government bureaucrat. I am not against regulation; I am against misrepresenting the concept of “free market” as “unregulated market”.
No mate, Der Trihs was saying much more than merely regulation can be useful, he was making old school Sov style claims about greater knowledge on the part of the Bureaucrat, etc. That is thinly disguised command economy thinking.
I’m not in any way equating regulation, even extensive regulation with Sov style economy. I do see in **his/b] thinking such thinking, including the parodic presentation of free market.
