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How to Control Markets Intelligently

June 3rd, 2009 by Mike N · No Comments · Politics

How not to defend free markets is once again demonstrated in the 6/02/09 Detroit News in an op-ed by Oskari Juurikkala, an adjunct scholar at the Acton Institute of Grand Rapids, Mi., a think tank devoted to the ‘study of religion and liberty.’ It’s the same conservative argument calling for less controls and regulations but this time it’s because:

“Human motivation is too complex to be controlled by policymakers.”

Well, it’s true that humans are complex beings. But it is not true that this is a good reason for humans to avoid authoritarian government. It makes no sense to say that some complex beings shouldn’t dictate to other complex beings because of their complexity. Presumably, if humans were more simple, dictatorship would be practical. Mr. Juurikkala continues:

“In a recent seminar on the financial crisis in Finland, a capital markets partner argued that the tightening regulation of financial markets has fostered a mentality in which market participants only comply with rules when necessary and think that anything is acceptable as long as it is not expressly forbidden.”

This is partly true. Regulations do create a mindset to meet regulatory requirements, not a good reputation’s requirements, and no more. But it isn’t the “tightening” of regulations that does it. It’s the existence of the regulations themselves that is the cause. Here we see that the author believes regulations are ok as long as we don’t ‘tighten’ them. This is like saying that you can get better motivation from your slaves if you don’t put too many chains on them, though chains are necessary. A chainless society is evidently alien to the author. Also missing is any recognition that regulations represent initiatory force while objective laws, intended by the founders, represent retaliatory force. The theme of the article is how best to manage reward and punishment in order to keep the producers producing? The next sentence:

“In “Not Just for the Money,” economist Bruno Frey explains why. The use of monetary incentives and threats of punishment crowds out other motivations, he writes.”

What other motivations?

“For example, giving monetary compensation to a child for doing household chores is likely to result in decreasing contributions made without compensation. Similarly, given that some university professors work harder than others, imposing strict working hour regulations often will provoke better workers to reduce their efforts.

This is what Frey calls the hidden cost of reward or regulation: When people feel they are being forced to act in a certain way, they have less motivation to do the right thing by themselves.”

Notice that it’s not a matter of people actually being forced to act in a certain way, but a matter of people feeling like their being forced. So while we can force people to do what is right, we don’t want them to feel forced. We need to convince them they still have some freedom to choose to do the right thing.

The evasions and contradictions in this op-ed are many. Consider this sentence: “Human motivation is too complex to be controlled by policymakers.” with this one:

“Is lighter regulation the solution to economic crises? It depends. Some over-the-counter financial derivatives are practically unregulated, so there is nowhere to cut regulation. It might be more appropriate to cover such clear gaps in existing rules in a principled manner so as not to lead people to the temptation of recklessness.”

The author has endorsed every argument used by the statists to destroy free markets but wants a kinder, gentler destruction.

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