Letting the System Learn
The 2000 Commodity Futures Modernization Act revived the bucket-shop bet. It was a rider attached to an 11,000-page appropriations bill hours before Congress planned to leave for Christmas recess. Page 262 forbade states to ban or regulate financial derivatives.
The Republican Congress passed the legislation, and Democratic President Bill Clinton signed it. Whatever Alan Greenspan wanted he got, which was capitalism unlocked from its regulatory chains.
She apparently has yet to hit upon the idea that government policies implying economic rescue distorted the system of incentives on which Greenspan’s philosophy relied.
Be that as it may, Harrop’s column brought to mind something that I don’t believe I’ve seen argued explicitly: A free system learns, often by trial and error. Isn’t heavy regulation, in that case, somewhat redundant? I mean, won’t banks and investment firms and other such players be more inclined to implement the safeguards that Greenspan assumed they would now that they’ve seen the consequences? It seems to me that childproofing the economic playroom will only allow for innovative thinkers to find new ways to profit from the absence of risk.