Populism, Left and Right
Russ Roberts is normally a free market economist, but in his essay he sounds like an old fashioned populist. When a firm does something to turn Russell Roberts into a populist then — perhaps — something is actually amiss with attitudes on Wall Street.
Pointer from Mark Thoma.
The problem as articulated by Russ Roberts is corporatism–the close ties between big business and big government, leading to profits that are created by special favors rather than by serving consumer interests. For populists on the left, the solution to corporatism is more government. For populists on the right, the solution is less government.
On the left, the argument is that Wall Street is bad, so we need government to rein in Wall Street. On the right, the argument is that government favoritism is bad, so we need to rein in government.
For the most part, the two sides talk past one another. The left accuses those of us on the right of excess faith in free markets. We view those on the left has having excess faith in government.
What we observe historically is that government regulators intend to make markets better, but they fail to do so. See my paper, Not What They Had in Mind. Sooner or later, the regulatory regime erodes, and it winds up serving narrow corporate interests, not broader consumer interests.
The new Rogoff and Reinhart book says that the four most dangerous words in finance are “This time is different.” When investors start to think that “this time is different,” they are ready to participate in a dangerous bubble.
Perhaps the fallacy of “This time is different” also applies to regulatory reform. It may be dangerous to think that with a new round of regulatory reform we are going to see different results from past regulatory reforms.