The Pretense of Regulatory Knowledge

Advocates of the free market are sometimes parodied for their seemingly all-purpose answer to any problem: Let the market handle it. What may sound like a simplistic answer, however, is actually the most complex prescription imaginable. In the modern world, the workings of any particular market are so complicated, they are beyond the grasp of mere mortals. Moment by moment, day by day, so many subtly interrelated decisions are made by so many people worldwide that no individual or group could possibly understand the big picture in any detailed way. So there is nothing simplistic about proposing the market as a solution to an economic problem. It’s short way of saying: let the multitude of knowledgeable people seeking profit, risking their own money, and responding to incentives find a solution based on persuasion not force. Translated that way, it sounds like a promising approach.

Ironically, those who don’t appreciate markets are in fact the ones who offer a simplistic, even empty alleged solution to economic problems: government regulation. That phrase is uttered like an incantation, the magical answer to all doubts about how, in the absence of fully free markets, problems would be solved. The irony is that while “let the market handle it” can be unpacked and made specific, “regulation” cannot. It can only be interpreted this way: Appoint a czar or a committee to somehow watch over things, and all will be well...

But chanting “regulation” and “oversight” is not a solution to anything. It raises more questions than it answers. Even if we assume the regulatory body would be populated by honest, disinterested people (a wild assumption, we should realize by now), how would they know what to do? As noted, markets are complex beyond imagination. One may have a great deal of knowledge about one’s own sliver of a given market, but that would count for nothing were one called on to regulate the whole thing. Sure, the committee could collect data. But to what avail? Data are history. By the time it is collected, it is old...

In opposing government regulation, no free-market advocate believes the public should be left to the mercy of reckless speculators, short-sellers, and the like, whose activities have the potential to harm bystanders. The public does indeed need protection. What the free-market advocate understands, however, is that regulation is not protection but merely a shoddy, deceptive substitute for the only real protection available: market discipline.

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