An Economy Of Liars

Reading the article "An Economy of Liars" in the Wall Street Journal, I've been surprised by the fine analysis made by Gerald P. O'Driscoll Jr.

He's telling us that we're in a crony capitalism because government and business collude. Wow, what a surprise to hear that from someone having worked as VP of Citigroup and VP at the Federal Reserve Bank of Dallas, isn't it? He argues that indeed Congress is charmed by lobbyists, experts backed by the industry, and so on... Plus, it seems that the regulators failed to see the obvious (Madoff and others). I would then wonder why this occured, but he's not really answering this point. He concludes that this scheme would be closer to Benito Mussolini than Adam Smith.

He then continues by a theoretical vision of how that should work (price system as information-transmission mechanism, honest pricing, ...) based on "Nobel laureate" Hayek's research. He states that communism failed because it did not rely on prices to allocate resources and that - roughly - this crisis could have been caused by the government because it controls 90% of housing finance. WTF?! Wow! Well done! Government is the bad guy having created the crisis because of some of their policies. That's a beautiful one! It means government is the culprit because some banks have created and sold toxic assets!

The conclusion is that we should return to free market by restoring truth-telling on markets. Of course! I'm ready! What a perfect world! Uh! But, just wait a minute ... Who was lying to us? Government? Who has created these toxic assets? WTF, Gerald! You therefore are continuing to lie to us?! I can't believe it ...

I have some questions for Gerald. Could you tell me why these lobbyists or experts exist? Or more accurately, what are the reasons behind their existence? What would your vision of the world change? Would it mean that if we were in your free market vision of the world, institutions would stop to cheat? Really?! Are you *really* selling us this idea? I mean ... *really, really*?

My man, you're just asking the wrong question! You can't rely on a perfect theory nor a perfect world. In practice, theory models are not correct and world is not simple!  The answer is not to tell us that financial won't never fail within this framework or another. They will fail! We are human! Then the real question to answer is "What are our best mechanisms to handle these financial institutions when they (will) come to fail?" Followed by an addendum describing "how smart these mechanisms are" and "what are their limits". Again, when governments are creating some laws telling humans they can't kill someone, they are also creating some institutions being able to catch/investigate the potential infringing cases. These are far from being perfect but who would tell seriously they should not exist?

I agree with you, bailing out these financial institutions should not have been done! This is the natural selection. But what consequences then? Tell me.

More, sanctions should not be something theoretic! Whatever the situation in which you are, people are infringing some rules - whatever they be laws or morale. If free market for you means that there is no way to sue some financial institutions, I would not like to live in the same world. Financial Institutions are already cheating with some regulations, imagine what mess it would be if they were no rule at all for them! Who is fool enough to let the world without any regulations? (to the exception of the ones who are already cheating right now of course ...)

Would free market solve the climate issue? Unemployment? Water? Oil price? Or US wealth distribution?