Of Lions, Zebras, and Market Regulation
Judge Richard A. Posner, a U.S. circuit court judge and one of the most cited legal scholars in U.S. history has long been a prominent champion of capitalism and market deregulation. He’s still a capitalist, but the recession and the financial industry implosion has led him to re-think his views on regulation. He has a forthcoming book, A Failure of Capitalism which I’ll look forward to reading. He discusses his change of heart in this article.
His best analogy is this one:
“If you’re worried that lions are eating too many zebras, you don’t say to the lions, ‘You’re eating too many zebras.’ You have to build a fence around the lions. They’re not going to build it.”
Similarly, Posner doesn’t blame the investment bankers (but the deregulation, especially the way Gramm–Leach-Biley repealed Glass-Steagall in 1999) for not sensing how their high risk behavior put the entire global economy at risk. “If you say to a banker, ‘If all the banks go broke, the economy will take a hit.’ They’ll say, ‘What can I do. If I decide to play it safe, my competitors will take all my business.’ ”
Since our free-market system encourages businessmen to be self-interested profit maximizers, Posner says it doesn’t make sense to also ask them to be conscious of their impact on the wider economy.
“You can’t expect [an] individual firm to be worrying about what his collapse will do to the rest of economy. That’s why you need government regulation of banking… Coal-burning utilities in the Midwest don’t worry about acid rain because that’s going to be in the east. That’s why you need regulation.”
The entire article is worth reading.
Sorry, the comment form is closed at this time.