Don’t be too quick to over-regulate

Tuesday, November 25. 2008

The present global financial situation has seen a plethora of calls for greater government involvement in the functioning of economies and, more specifically, being used as evidence that markets just plain don’t work. An example of such thinking appeared in La Trobe Opinions last month (see Christopher Scanlon, “The Market Delusion”, 13 October 2008). Apparently the events of the last two months have destroyed the “delusions” that markets are simple affairs, markets are natural and function best without government interference and that markets are free of ideology.

As one of the apparently delusional free-marketeers, I’m not entirely sure anyone has actually argued that markets are simple matters. What is more to the point is that markets facilitate an intricate system of exchanges utilising a relatively simple mechanism. This is not to say that the mechanism itself is simple, though. Anyone who doubts that ought to go the nearest university library and look at any book on price theory. It is interesting to note that no suggestions are forthcoming as to what ought to replace markets to determine the allocation of goods and services (including financial services).

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