Wednesday, October 29, 2008

"We have a presumption against government regulation, which can be rebutted by showing long-term social improvements"

Richard Epstein on Forbes about Jacob Weisberg on Slate. I actually posted on Slate about this, and received a few ludicrous comments. I have to admit that I took Weisberg to be indulging in a bit of over the top polemic, and my response was meant to be a little humorous and over the top as well. Others, a lot of other libertarians, have responded to Weisberg, taking him to be completely serious. Anyway, I like this quote from Epstein:

"Limited-government libertarians like me are not anarchists. We have a presumption against government regulation, which can be rebutted by showing long-term social improvements. We know not only about the virtues of competitive markets, but of the challenges posed by asymmetrical information, public goods, prisoner's dilemmas and market cascades.

Accordingly, we recognize that the specter of bank runs, illiquidity and credit freezes might justify some regulation. In dealing with the current crisis, we have to accept some role for the Federal Reserve as a lender of last resort under our current institutional arrangements. But we are equally adamant that bad regulation can wreck credit markets. And we insist that governments must mend their lending habits to reduce the odds of credit trains going off the rails yet again. We also strenuously oppose using the credit crisis as a lever for introducing all sorts of senseless gimmicks to disrupt labor and product markets."

I tend to agree with this statement, and my main arguments with Epstein would be about those long-term social improvements and how to get there.

On this, I totally agree:

"Alas, the financial rot started in the underlying home-mortgage market, with the government decision to subsidize home mortgages generally through low interest rates, and compounds the problem by offering special Fannie and Freddie guarantees at the low end of the market.

These foolish decisions prompted market actors to react just as libertarians fear: to profit privately from public foolishness. Savvy lenders looked less to the creditworthiness of their borrowers and more to unwise government guarantees that insulated them from risk. A high-risk loan of $1,000, without that guarantee, could be worth half that sum before the ink was dry. But who cares, if a government agency will pick up the slack?"

It's good to have his agreement on this.

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