How Important and Intelligent Government Regulators Think They Are

    Do not think about, write about or deal with  human behavior without determining the effects of incentives.

    Wherein we see that regulators believe they know what the free market should be doing. This is such a stretch because the free market never knows what it should be doing. Rather than believing it knows, the free market does. If it works, you make money. If it doesn’t, time to try again. Only the government regulators pretend they have knowledge. Those who do have knowledge, just do.

National Post

Who regulates the regulators?

The greatest achievements of market are instantly criminalized

Jean Tirole’s economics Nobel has inevitably been celebrated as corroboration for assiduous intervention, and even a vote of confidence in his beleaguered French homeland. Market regulation via game and contract theory has been his life’s work. However, Professor Tirole’s theories were perhaps most relevant in the Thatcherite eighties, when regulation and deregulation concentrated on the privatization of grossly mismanaged state monopolies. Meanwhile M. Tirole’s work in contract theory may be most valuable in addressing government incompetence in procurement rather than “reining in” big companies, as the Nobel committee suggests


   The largest enterprises which need reining in are governments.

Regulatory aspirations have always to be set against regulatory realities. Canada’s allegedly free-enterprise government has bungled the regulation of railroads and telecommunications, although the U.S. has clearly outbungled it when it comes to affordable care and financial controls. Meanwhile M. Tirole has proved a problematic champion for dirigiste France. Just as French Prime Minister Manuel Valls was tweeting about his Nobel being a “snub to French-bashing,” M. Tirole was bashing French policy.

The professor from Toulouse declared the French economy “catastrophic” and urged faster deregulation and deficit cuts, both of which the Socialist government is fiercely resisting. France is drowning in debt which is only manageable because of artificially low, government-regulated interest rates. And while it may be keen to impose regulations on business, it seems singularly reluctant to follow the EU’s regulations on deficit-to-national income levels.

Markets provide a wall of worry for those obsessed by equity, perfection and fettering capitalism. Somehow it is possible to gloss over markets’ astonishing achievements in making peoples’ lives longer, healthier and more enjoyable. The obsessives’ relentless concern is that prices might be too high, or innovation might be too low, or somebody might be getting too rich. Above all, they obsess about corporate “power” while appearing quite blind to the infinitely greater and more dangerous “countervailing” power of governments.

You would go crazy thinking about all the way that markets can “fail,” and thus allegedly need regulating. There are price gouging, dangerous products and lax labour standards. There are monopolies and oligopolies. There are externalities (including now the Mother of them all: catastrophic projected man-made climate change). There’s inequality, and the awesome reach of Google and Facebook (whose founders are also leading causes of inequality). Sure, market transactions might mean gains for both sides, but who gains more? Then there are related knowledge “asymmetries.” Every brilliant innovation creates at least a temporary monopoly. Thus the greatest achievements of market are instantly criminalized, and its workings and results ritually castigated.

However, the ability to charge a (temporary) “high” price for a desirable product — or give it away for free in return for delivering customers to marketers, as with Google and Facebook — hardly ranks with the ability to coerce, expropriate and throw people in jail. Meanwhile the obsession with eradicating “excessive profits” ignores the fact that it is high profits that attract competition and innovation.

Governments of all shapes and sizes are eager to foment worries about markets because they provide a rationale for intervention, whether via regulation, “stimulus,” or the promotion of “good things” such as more R&D. However, as Adam Smith noted a long time ago, and great economists such as Friedrich Hayek and Ludwig von Mises have elaborated since, it is government intervention and regulation that tends to create instability and slow growth in the first place.


    The combination of arrogance, hubris and incompetence is something to see, but it’s not new and should cause no astonishment.

A classic current example is the alleged confounding of the poobahs of economic management by the global economic slowdown. This was obvious at last weekend’s meeting of the International Monetary Fund in Washington. IMF head Christine Lagarde’s idea of an explanation is to lambaste the demonized financial sector. “There is too little economic risk taking, and too much financial risk-taking,” declared Ms. Selfregarde. But could that have anything to do with those artificially low interest rates and the inevitable tendency to exploit resulting asset bubbles?


   They continue to be wrong, but are never discouraged, producing crisis after crisis and blaming others—greed, inflation, poor management, their list of  the putative failures  of others is endless.

Governments — particularly European governments — have borrowed to the hilt in pursuit of the Keynesian delusion that you can spend yourself rich. Incompetent banks have been bailed out and merged into even larger and potentially more destabilizing entities. Governments have eagerly used the threat of projected catastrophic man-made climate change to have yet another go at industrial strategy, picking solar and windmill “winners” who represent an increasing drain on the public purse.


    Spend yourself rich. Keynes was so wrong that only governments pay attention to him.

Given this catalogue of raving incompetence, one might imagine that governments should concentrate on getting out of markets rather than looking for excuses to intrude further. But governments do not understand markets, and they do not like markets.

M. Tirole has claimed that “unlimited trust in the efficiency of markets” is old hat, but unlimited trust in the efficiency of governments is either infinitely more naïve, or infinitely more selfinterested if you happen to be a peddler of regulatory wisdom.

While M. Tirole has been celebrated for his practicality, he also teaches that the competitive conditions of each industrial market are different. While this is indeed true, the notion that governments will contain individuals who are expert at each particular market is not just a pipe dream, it is a massive waste of brainpower. M. Tirole has admitted that regulation can fail, but governments tend not to be interested in that part of his analysis.

Everybody favours smarter regulation. Unfortunately that is not what the state tends to provide, no matter how smart its advisors.


     The Dance of Idiots goes on and neither the dancers nor the audience can tell how silly it is. The dancers produce nothing but political theatre.

Government Job or Respect–Which’ll It Be?
Cheerio and ttfn,
Grant Coulson, Ph.D.
Author, “Days of Songs and Mirrors: A Jacobite in the ‘45.”
Cui Bono–Cherchez les Contingencies


Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )


Connecting to %s

%d bloggers like this: