Ross Gittins, Australia's ignorant economist, wanking over need for more regulation

One of the things you're supposed to learn in economics is to avoid extremes. It's never all or nothing. Everything has advantages and disadvantages. And any way you jump has an opportunity cost because there are lots of things you'd like to do with your limited means. So life is about trade-offs between rival objectives and you should optimise rather than maximise.

That's what economics teaches, but it's not always what economists do. A big part of the reason for the global financial crisis - which reached its apogee almost a year ago - was the dominance of an extreme view that the market system could work well with minimal government supervision.

Although we in Australia seem to have escaped the worst consequences of the crisis, we suffered the same intellectual delusion, which was manifest in other, thankfully less important areas. Just as the Americans and Europeans need to learn a lesson, we do, too.

Humans have been buying and selling goods in markets for millenniums and we'll probably go on doing so for as long the planet lasts. Markets are undoubtedly an efficient way to conduct economic activity and they do impose their own discipline on their participants.

The problem comes when markets are seen as a ''system'' possessed of almost magical powers to never run off the rails and always deliver satisfactory outcomes without government interference.

There's no such thing as a ''free market'' - all markets are regulated by governments to a greater or lesser extent. It's just that, over the past 30 years, the intellectual fashion swung heavily in the direction of minimising regulation. We dismantled a lot of the safety rails. And we had regulators who doubted the wisdom of regulation.

The events of the global financial crisis were a stark reminder that markets are populated by fallible human beings, subject to greed, envy and fear, short-sightedness, gullibility and rapaciousness. So markets are far from perfect. They need to operate within a government-imposed framework and be diligently regulated to ensure rules are obeyed.

LNK

Ross Gittins, Australia's ignorant economist, wanking over need for more regulation

Ross Gittins, Australia's ignorant economist, wanking over need for more regulation

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