Tuesday, July 19, 2016

My Comment To WSJ "Markets Run Into Skepticism—and Regulators"

My comment to The Wall Street Journal, "Markets Run Into Skepticism—and Regulators: Faith in economic freedom used to be a given in the West. Now a misguided trust in government control is growing." by Daniel Yergin:
Markets never cease working.

Government involvement, laws, regulations, subsidies and price control increase the costs of goods and transactions unevenly, which causes markets to cease pricing accurately and to cease allocating capital based on return and risk. If government becomes too heavy handed, illegal markets develop.

Government frequently attempts to do away with buyer's or investor's risk, such as FDIC deposit insurance, Too Big To Fail, Ginnie Mae, Fannie Mae and Freddie Mac's direct or implicit backstop government guarantees.

When government hides risk there is too much investment in too risky assets that can lead to severe negative macroeconomic events, such as the housing bubble, its collapse and the recent recession.

Markets need only a rule of law that protects property rights and enforces contracts. More government involvement creates price and risk distortions, which eventually lead to bad investments, bubbles, recessions and slow growth.


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