Monday, September 22, 2008

Economic Regulation

The financial crisis on Wall Street has caused a number of people to call for new regulations. The problem however is that we have lots of regulations already. But they didn't work. In some cases it was political pressure. In other cases it was personal corruption. Those who were supposed to have oversight either had no authority to call the guilty to account or chose to turn a blind eye as a matter of policy. In some cases, the rules themselves caused the problem.

The solutions are not more regulations, but the right regulations. Many of the current rules need to be used to roast marshmallows. Then new regulations need to be put in their place. These rules need to be few, clear and effective.

At the heart of this this is human nature. We are corrupt beings. Men, left to their own devices will act dishonestly. We can't have this when people are entrusting their life savings and fiscal security to these people. So we have to, on some level, legislate honesty. That's why we must have some rules for our financial industry. But we must not over regulate it either. Bad rules not only fail to protect us, they might even contribute to the industry failing.

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