Unregulated Markets “were” Self-Correcting
The Baseline Scenario goes with the title “I Have 13 Bankers in My Office,” which is pretty good.
But I like Mark Thoma’s summary:
The people in charge of the regulatory agencies were convinced that unregulated markets were self-correcting, and that regulation was not needed and would more likely do harm than good. As this shows, no amount of convincing from people who weren’t as smart as the smartest guys in the room was going to change that. The question for me is whether those in charge now, Summers for example, have learned their lesson and the humility to be derived from it, or whether they will be defensive of their own role to the extent that it affects the type of regulation they can support. I’d very much like to believe they have learned their lesson, though humility seems to be lacking, but watching Summers and others argue that the private sector and the market is preferable to temporary government takeover of banks (i.e. his and the administration’s opposition to temporary nationalization), – the continued faith that the market always knows best – makes me wonder if they have.
That’s an important paragraph, because so many have not learned, and only deal with it through a kind of avoidance. They don’t think about it. They skip forward to where unregulated markets “are” self-correcting again.