Our Limited Abilities Require Other Limits

Last week I asked, in effect, Who regulates the regulators?

It does no good to say “the people,” because — as much as I want government to be ultimately controlled by the people — if you’re like me, you don’t know enough to micro-​regulate high finance.

But there’s something I didn’t mention last Wednesday: The regulators don’t have that knowledge, either.

Even keeping eyeballs on simple fraud turns out to be difficult. Trying to micromanage high finance? Much harder.

But the congenital inability of regulators properly to regulate doesn’t mean that we must consign ourselves to a never-​ending, Sisyphean cycle of boom and bust. 

Many of the instruments of the modern federal government try to do too much. These very institutions, because they hubristically attempt to regulate away boom bust deliver just the opposite. They make sure booms go bust in messy ways. 

Here’s a fresh example: “Lack of regulation” wasn’t the main reason for this latest bust. More important? The “too big to fail” subsidy. By giving Wall Street, big bankers, and financial intermediaries the impression that they would be bailed out in case of implosion, those very same folks behaved in such a way to risk said implosion, and thus needing the bailouts.

Which happened.

Which started the cycle all over.

Only by going back to basics can we improve our long-​term economic outlook — not by government micromanaging the economy.

Nicely, citizens like you and me can understand these “basics.”

And defend them.

This is Common Sense. I’m Paul Jacob.