Government regulation failed again, yet more is called for

“No matter how much the government controls the economic system, any problem will be blamed on whatever small zone of freedom that remains.”

That’s the opening shot in Sheldon Richman‘s article The Madoff Scandal Exposes Government Failure.

Richman quotes a columnist who wrote, as have many, “The long, bipartisan experiment with financial deregulation has failed utterly.” As if that happened. Richman counters: “… there has been no relevant financial deregulation to speak of. In fact, since Enron’s collapse, regulation has intensified and the regulatory budget has grown.”

Richman makes these major points:

• “A false sense of security is worse than none at all.” Relying on a faulty protector is worse than no protector at all. Then, at least you know that you have to fend for yourself.
• “Advocates of regulation may reply that even seasoned investors may not be able to recognize inadequate disclosure of key factors.” Recall that many of those who lost money to Madoff were wealthy and successful people. As Richman states, “What makes anyone think government regulators are better able to spot fraud than potential investors and professional watchdogs?”
• “The call for regulation assumes — without grounds — that government can protect investors from con men.” We see failure of regulation all the time. A meat packing plant has one or more full-time government inspectors, yet the plant still sends out contaminated product.

In conclusion: “The claim of free-market advocates is not that we need no protection from the unscrupulous. Rather, it’s that protection is maximized by undiluted market discipline — profit and loss — and buyer-beware skepticism.”