Thursday, October 20, 2011

Laissez Faire's Flaws

There is a serious flaw in the notion that competition causes lower prices, because supply and demand (modified by the notion of all the market will bear) wreaks havoc on pricing. Also, there are problems incurred when lower prices lead to increased consumption of scarce resources (see: water, electricity, etc…).

Then there's human nature!

Adam Smith was onto something in his other tome: The Theory of Moral Sentiments. The idea was that human nature brought individuals into conflict with self-interest driven economics; simplistically known as enlightened or unenlightened self-interest.

Free trade can be subjugated by an individual with no moral self-restraint and no respect for external restraints. Laissez faire boosters, once in government office, consistently try to drop regulatory efforts; essentially turning the playground over to the cheats and bullies.

There is a constant struggle twixt regulators and regulated that tries to inflict or mitigate pain to the consumer caught in the middle. Basic regulation is essential to functioning markets, because a few malevolent individuals can cause pain, stress and serious damage (see: 1986 – the S&L debacle; 2001 - the dot-bomb; 2007 – the Great Recession) to the economy.

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