There has been much discussion recently about the proper role of government in regulating financial markets. As we know, the regulatory doctrine of the Bush administration was an absolutist “less is more”. And as we know, this doctrine has led to catastrophic failure.
Specifically, there was no mechanism whatsoever for any regulatory agency to even be aware what transactions were taking place as one entity made a deal with another to take bets on the outcome of some financial indicator or stock movement. And as bets were built on top of other bets, and those deals started to build upon previous deals, there was literally no record available to flag an alarm as the entire edifice started turning into a very tall and very rickety house of cards.
If you look at a thriving capitalist society as a healthy organism – one built upon competition – it’s possible to view a government that supports and encourages capitalist trade as a kind of immune system. As long as the system is functioning properly, the immune system is quiescent. But when the system is subject to attack, the immune system is supposed to be responsive, to swing into action, so that the market can go back to healthy functioning.
What the Bush administration did, by dismantling even the possibility of detecting any irregularity in the system, was essentially to induce a kind of economic auto-immune deficiency. In effect, in the last seven years our government’s policy rendered our financial trading system EIV (Economic Immunodeficiency Virus) positive.
A system can go on for years in EIV-positive status, without even knowing that anything is wrong. But of course as soon as the system suffers any sort of viral breakdown, the lack of a functioning immune system can quickly prove fatal.
It didn’t have to be this way.
That’s a very keen view on what’s going on. Being an economist myself, a vision of gov being an immune system of an economic organism never entered my sight. Thanks for that idea.