| Guns, drugs and financial markets |
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| Written by Tim Worstall | |
| Monday, 21 April 2008 | |
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Dani Rodrik equates the three things, guns, drugs and financial markets, and asks why we don't view them in the same way when it comes to their regulation? He does so to point out that, correctly, all three have benefits for their users but can have spill over effects or externalities, upon others. Further, that the fact that all advanced societies strictly regulate the availability of drugs, most do firearms, means that we should be regulating financial markets much more closely and restrictively: True prudence requires that regulators avail themselves of a broader set of policy instruments, including quantitative ceilings, transaction taxes, restrictions on securitization, prohibitions, or other direct inhibitions on financial transactions... Well, yes, except that argument rather relies on the thought that our current regulation of drugs and guns is indeed correct for finance to require those greater restrictions. And of course around here we don't think that to be true. That gun crime has risen in the UK since the banning of handguns and the tightening of the restrictions upon private ownership of other types is one thought. But that we around here think that it is the very illegality, the regulation, of drugs that causes most of the problems surrounding them might give us pause as well. Overdoses, disease from shared needles like hepatitis C and AIDS, adulteration, the crime surrounding the supply, the crime of addicts stealing to fund their habit, all of these are direct results of the regulations themselves and as we often (and forcefully) argue those results are worse than simply allowing people to exercise their natural liberty to dose themselves as they see fit. Ricardo Hausman weighs in Rodrik's comment section too: I am sure Dani would agree that Silicon Valley venture capital, by allowing start-ups to be created and grow all the way to an IPO, is an incredibly productive financial innovation that no policymaker could have designed ex ante. One could say also many positive things about leasing and factoring and the list goes on and on. Financial innovation is part of the overall process of technological innovation that has been valuable throughout human history. Quite: given that we don't have and never will have omniscient (to say nothing of unbiased or unbribable) regulators, providing them with the power to stifle innovation is simply going to make our children poorer than they need to be. It might also be worth pointing out that people have at various times tried ceilings, transaction taxes, restrictions upon securitisation and other direct inhibitions: the US did in the 1960s and 70s for example upon certain bonds. They don't work all that well though, as with the similar regulations upon drugs: where else do you think the Eurodollar markets came from and why are they based in London, not New York? Comments (2)
Risk is the oxygen of development, written by Per Kurowski, April 21, 2008
Risk is the oxygen of development, and therfore we need to be extremely careful with the limitations we put on risk taking. For instance what good would it do us manage to totally wrangle out risks from the financial sector but the financial sector does not do its job correctly?…and so that the last standing economic survivor is one huge world bank where we all have to work as economically efficient human alternatives to automated bank tellers?
Currently the only objective set up by the financial regulators and most specially by the bank regulators anchored on Basle, has been for the banks not to default… and I must say that to me sounds like a true purposeless objective. Sure we want more of our financial system. A young entrepreneur with a good idea and lots of initiative but no financial backing will always find it more difficult o borrow money that someone who just wants to advance some consumption and has good earning prospects or other assets to guarantee his borrowing with. That is the market price for risk. But, on top of that market premium for risk, as if it was not enough, our bank regulators have introduced, through the minimum capital requirements based on default risk as measured by the credit rating agencies, an additional tax on risk, a regulatory risk adverseness tax so to say. We really have to start thinking again about a financial sector that produces more real sustainable results than the last western world growth cycle has to show for itself. I have always said we need to measure the full boom-bust to find out the net results because focusing solely on the hangover (bank-crisis) will just keep us away from the parties. In that respect it would behoove us to think of risk more in terms of an element to be consumed in order to produce some other results than pure short-term profitability, like for instance units of risk of default per decent job created, per person educated or per environmental hazard avoided. Write comment
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Just how much of a police state do the prohibitionists wish to live in? Because if they actually want to have any effect on drugs, we would have to live in a society with less freedom than those currently in Jail.
If they cannot even stop drugs in jails, which they obviously can't - what chance in hell do they have of controlling drugs in the country at large? Precisely none.
Z.