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Capitalism 2.0: The Need For Regulation

Posted on Saturday, Mar 28th 2009

Never have I spent so much of my thinking energy on trying to understand, question, assess, debug, and dissect a value system that I had, for years, accepted as a fundamental principle of my life.

This series, I hope, will provide a forum for many of us experiencing the same period of questioning, an opportunity to discuss.

Let’s start with a definition by Capitalism’s high priestess, Ayn Rand:

“Capitalism is a social system based on the recognition of individual rights, including property rights, in which all property is privately owned.

The recognition of individual rights entails the banishment of physical force from human relationships: basically, rights can be violated only by means of force. In a capitalist society, no man or group may initiate the use of physical force against others. The only function of the government, in such a society, is the task of protecting man’s rights, i.e., the task of protecting him from physical force; the government acts as the agent of man’s right of self-defense, and may use force only in retaliation and only against those who initiate its use; thus the government is the means of placing the retaliatory use of force under objective control.”

Today’ we’re seeing the government take a role well beyond this rather simplistic definition, and we’re even discovering that some of it is desirable.

Rand also goes on to say, “When I say “capitalism,” I mean a full, pure, uncontrolled, unregulated laissez-faire capitalism—with a separation of state and economics, in the same way and for the same reasons as the separation of state and church.”

Yet, regulation, clearly, has become necessary, to control one of the basic forces of human nature: greed, especially that greed which is unconstrained by ethics.

My personal analysis suggests that while in Rand’s definition, greed is good, and a part of the capitalistic equation, she missed one of the essential ‘bugs’ in the system: lack of conscience in human beings.

Greed that is coupled with a strong ethical value system – a moral code – is the ideal. But unbridled greed, unconstrained by morality, is the ‘bug’ that requires checks and balances in the system.

And that is where regulation comes in.

And it is quite obvious, today, that it needs to come in.

This segment is a part in the series : Capitalism 2.0

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This idea of more regulation to cure the problems of capitalism is absurd. If someone is doing amoral such as cheating people out of their money, they will be punished by law. As for regulation, think of fat ass Barney Frank regulating you. Can you imaging the mess? We had a SEC which did NOTHING when it was informed about Madoff’s Ponzi scheme in 1999.

Self-acting restraints is what works best. Banks have failed and have become a burdent on taxpayers eventhough they are heavily regulated. Hedge funds have simply gone out of business. Banks could work better if they, as FA Hayek had long back recommended, be allowed to have their own currencies so if they make bad investments their currencies will depreciate.

Kishore Jethanandani Saturday, March 28, 2009 at 10:42 AM PT

Recently Ayn Rand has been quoted with her doctrines being the epitome of capitalism. In a more isolated society where countries are not power mongers and people can live off of the land independently with neighbors helping because they know they will need help, free reign capitalism might work well for the benefit of the society. That is if you believe that pure capitalism benefits society in general or just the individual. In looking at societies, it seems apparent that the individual is eventually affected by the society. The U.S. hasn’t had real free markets for decades, if ever. At best pure capitalism is based on survival of the fittest, but when the government gives incentives to some businesses, and not others, pure capitalism has been compromised.

Where do you see pure capitalism in American business today?

Nancy Miller Saturday, March 28, 2009 at 11:15 AM PT

Regulation is definitely a major tool in the governing toolbox, and I always wonder about other approaches to encouraging and discouraging behaviors in human systems. Fields like evolutionary psychology and behavioral economics seem to suggest that in addition to the negative behaviors humans display, we also seem to have inherent dispositions for cooperation, alturism, and fairness. I think it is useful for us to also consider how our systems can be designed structurally (i.e. relationships and interactions) to create more spaces or opportunities for the cooperative behaviors to emerge.

Richard Lum Saturday, March 28, 2009 at 12:18 PM PT

Kishore,

The fallacy in your assumption is that you think that the regulatory system in place today is the final answer.

In this series of discussions, I am questioning all the fundamental assumptions of society, economics, philosophy. I encourage you to do the same.

I think, if you think in those terms, you will come to the same conclusion that the right kind of regulation is desirable.

We cannot allow guys like Madoff to ruin hundreds of thousands of people before he gets caught. Regulation needs to prevent that.

Nancy – We don’t have pure capitalism today. That’s largely why we’re questioning the model and philosophy right now. That’s why we’re having this discussion. I am interested in finding the right “next system” that works.

Richard – good thoughts. Mohammed Yunus’ Microfinance experiment in Bangladesh is a good one in this respect. Peer groups that hold borrowers accountable for paying their loans back.

Let’s keep going with this discussion.

Sramana Mitra Saturday, March 28, 2009 at 4:49 PM PT

“If someone is doing amoral such as cheating people out of their money, they will be punished by law.”

– Regulation is putting the law correctly when the existing law can’t control cheating. I believe when the current law fails there has to be a way to amend the law to make it work. I don’t know whether you call it regulation or not.

A society is built upon a set of rules and regulations pure capitalism or not every -ism need to follow those unless it convinces the majority of the society that the law needs to be changed.

However, there is always a concern of the rule of majority governing the genius and making the law of average dominant.

The fallacy of the expectation of people ‘why people expect me to behave in a certain way’ will remain as fallacy as long as one doesn’t choose the right society for him/her to live in.

I believe that the society would always have to cater to better predictability as well as stop it’s members from getting ‘cheated’.

Santanu Sunday, March 29, 2009 at 1:25 PM PT

Regulations, and law, are poor substitutes for mature, adult human decision-making. As long as our happiness, self-worth, and egos are tied to the next material purchase, avarice will rule the day.

When people start thinking through their actions and decisions, and how those affect others, we will have real progress here. Not before.

This does not mean the end of progress; it just means the end of excess.

Michael Bain Monday, March 30, 2009 at 11:00 AM PT

Yes, but if you think the world will suddenly become an ideal place where everyone starts to think like mature, rational adults, you must be smoking something that I hope I never come across.

It’s absurd.

Most of the world does not think rationally. This is why law and regulation become necessary.

Sramana Mitra Monday, March 30, 2009 at 11:36 AM PT

1. lack of conscience in human beings.

Rand definitely did not miss this. She writes from a personal antipathy to the Bolsheviks and their forced shared misery. Rand’s prescription is in contrast person directed excellence as made most manifest in production or invention. It’s talent centered and talent implies rationality for Rand – at least all her heroes are both. The morality is otherwise thus both utterly personal and genuine whereever good work occurs. It is in this way its own best evidence. “Idle hands do the work of the devil” is not an anti Rand sentiment per say. She would modify it though to point to rational work and no devil, but that last is perhaps her own shortcoming as evidenced perhaps again by the Bolsheviks, though despite what the horrors they perpetrated, she would ascribe their work to the devil – they are instead both guilty and ignorant. This characterization borrows much from Plato. At least that’s how it is regards Rand on my read of Atlas Shrugged.

Chris Monday, March 30, 2009 at 11:58 AM PT

Sorry, that last sentence was garbled. It should have read….

though despite what the horrors they perpetrated, she would NOT ascribe their work to the devil – they are instead both guilty (of injustice) and ignorant (which is why).

Chris Monday, March 30, 2009 at 12:23 PM PT

Sramana,

You misunderstand my point. Government failure is more common than market failure. In the current mood, people are inclined to see more the weaknesses of the laissez faire capitalist system while overlooking the glaring failures of regulatory system. We will pay for this myopia at a later stage and will surely see free markets flowering again. Socialist systems have never worked and they have no chance of working ever. The cure for market failure is more freedom not less. Much of the financial debacle in recent years can be attributed to Fannie Mae and Freddie Mac and it was foreseen as far back as 1999 by scholars in AEI. I shake my head when I see an Ayn Rand protege getting confused by current fashions of Government tyranny.

Kishore Jethanandani Monday, March 30, 2009 at 4:53 PM PT

You are confused about the intent of this series, not me.

I am trying to think through a different system that preserves the best of free market capitalism, but also debug its flaws.

If you’re trying to tell me that Capitalism 1.0 has no flaws, I’d have to suggest you go get your head checked.

Or, as Ayn Rand would say, “check your assumptions.”

Sramana Mitra Monday, March 30, 2009 at 4:57 PM PT

I am saying the problem is mostly with Socialism 1.0 which includes the “affordable housing” boondoogle, an expensive and grossly inefficient public school system, a health care system that distorts incentives for cost reduction and a social security system that forces low return investments. All of these raise the costs of doing business in the USA. For recovery to happen in the USA, the road forward is laid out at http://kishorejets.typepad.com/us_election_2008_controve/2008/12/when-will-the-us-economy-recover.html

If after all this you see problem only with capitalism, then I am afraid you don’t understand free markets. They have always worked and they will always work.

Kishore Jethanandani Tuesday, March 31, 2009 at 8:17 AM PT

I have no interest in Socialism 1.0, 2.0 or 3.0. It is full of problems, and I don’t want to debug a system that only consists of bugs, and very little that is worth preserving.

If you start with Capitalism 1.0, you have a reasonably functional system, and you can debug it to come up with a 2.0 that works.

Sramana Mitra Tuesday, March 31, 2009 at 8:58 AM PT

This sounds more reasonable. What does this debugging involve?

Kishore Jethanandani Tuesday, March 31, 2009 at 10:55 AM PT

Critical thinking. Research. Studying. Questioning. Understanding.

All the things that the human mind in its best form is empowered to do.

Sramana Mitra Tuesday, March 31, 2009 at 12:12 PM PT

The concept of Capitalism espoused by Any Rand is in error. Human beings will always op for power and control. ““Capitalism is a social system based on the recognition of individual rights, including property rights, in which all property is privately owned.” This definition defies Western civilization: the king or the state owns all the land. There is no private ownership in real terms. All property is at the whim of those in power.
Human nature precludes much of the reform necessary to build a society bsed on freedom and individual rights. We have handed down traditions and the “supposed to be’s” that are the aspects that erode personal freedom.
Social movements like Political Correctness are used to enforce codes of behavior that infringe on personal freedom. For the gain of actually a small group of disaffected.
Human nature is the real basis for economic and social unrest. It is us that need to face difficult choices to ensure freedom that is not exploitative nor exploited by others.

V.A. VonWolf Monday, April 13, 2009 at 10:40 AM PT

I like the idea that there’s a bug somewhere in the system that can be ‘surgically’ removed. But I think a more accurate representation of reality is a cancer that has led to metastasis in several nodes, most notably the nodes of housing, consumption and finance. I would argue that Ayn Rand’s critical assumption is that individuals have access to full information and transparent disclosure at all times. The cancer is this case is a combination of systemic opacity and individual complicity. Taleb is calling for a dramatic shift to simplicity and transparency in financial instruments. I would combine this with harsh punitive punishment for complicity (of regulators, boards, etc.). I think this prognosis will work better than more regulation.

Indro Roy Monday, April 13, 2009 at 9:04 PM PT

More transparency is important too. But more regulation is also, unfortunately, necessary, especially to reign in the short-sellers and other destructive speculators.

Sramana Mitra Tuesday, April 14, 2009 at 3:25 PM PT

Why should shorts take the rap when the longs were wrong?

I have seen extreme complicty (crony capitalism) build the 90’s Asian bubble, and then we all turned around and blamed George Soros for the crash! Huh?

Crony capitalism is a term not often used in the US context … a misplaced sense of superiority on Wall street that cronyism is a thirld world thing, not affecting evolved societies where business and state are officially separated. I have seen IMF officials make presentations on dealing with cronyism and how to learn from US ‘best practice’.

Give me a break. I think the Washington – Wall Street nexus is alive and well. Shaken a bit, but not stirred.

So, regulation yes. But lets also figure out how to leave the regulator out of the ‘bed’ in the boardroom. Lets figure out how to put an end to corporate funding of political campaigns, making special interest lobbying a thing of the past, and ensuring that business thrives not because of government but in spite of it.

Indro Roy Thursday, April 16, 2009 at 8:49 PM PT

Who is this regulator ?
Is this a clique that decides rules of behavior and who belongs and who does not ?
Is this a democratic government – a supposedly freely elected body ?
How do we ensure that the regulator is the wisest one!

Sum Saturday, April 18, 2009 at 11:57 PM PT

Sum, Please take a look at this piece: Reconnecting With Economics where I discussed a systems design approach to regulation.

Sramana Mitra Sunday, April 19, 2009 at 9:09 AM PT

Capitalism 1.0 or any -ism is based on certain assumptions.

Let us look at some of the assumptions of capitalism:

1. People are honest and conscient.
2. An individual or institution will take the full consequences and responsibility of its doings.
3. No threat of physical force, coercion or fraud

(Information Asymmetry – we will come to this later)

Assuming that we have the above in place, markets will function and produce efficient outcomes. Bad institutions and bad behavior will be punished by markets.

We did come a long way from Mafia days of coercion and physical force usage and Governments have done an excellent job in ensuring individuals/institutions using physical force and coercion are punished.

As you have already noted, the biggest flaw was assumption that integrity is implicit. Individuals/Institutions have not been acting consciently and markets have failed to discover bad behavior and punish.

I think it is time Governments start establishing Financial Task Force (like Police Force) to ensure swift actions are taken against financial fraudsters. (I believe so long we have been complacent because unlike physical coercion, the financial fraud is not a life threat.)

In case you are interested in doing some research, I would suggest you talk to some Fund Managers in Indian Financial Institutions/VC and PE Firms.
Why do some of those Fund Managers invest in Infrastructure Firms that are heavily dependent upon Government Funds? Many of us know that Government funds are subjected to extreme manipulations and malpractices but fund managers do not seem to take any cognizance.

Like the auditors of SATYAM, I believe many of them know that markets are a failure and have no way of finding the truth.

It will be interesting to see their reactions.

Akaanksha Tuesday, April 21, 2009 at 4:03 AM PT

Sramana,
Nice series and timely indeed.
Have you noticed a similarity between Ayn Rand’s Capitalism theories and theories given by Carl Marx? Yes, I typed this right. The similarity is that they both are very simplistic in nature and they both fail to take complexity of human mind into account.
Telling somebody to regulate himself is as good as making somebody king and telling him to govern well. Did that monarchy thing work in our history? It worked only for those who ruled.

Socialists tell the poor people that we will all share the same misery. This resulted in loose-loose deal, it created a vicious cycle nobody wants and so the unscrupulous in the system cheated people and claimed dictatorship. It also worked for those who ruled.

The truth is that we need regulators to regulate the market in order to maintain free competition. That usually benefit the society. We also need checks and balances among the regulators to ensure maximum transparency possible (in spite of what some claim, corruption exists more or less in the upper part of every administration in every country). De-regulation is nothing but a theoretical excuse for governing bodies to ignore the duty.

Sid Tuesday, April 21, 2009 at 8:57 AM PT

I agree. While simple is good, simplistic produces half-baked solutions.

Sramana Mitra Tuesday, April 21, 2009 at 9:36 AM PT

If someone brought a 1/10 oz gold coin to the bank in the year 1 AD, and the money remained there until the year 2000 AD, collecting a yearly interest of 4%, the amount of gold in the account would have been 3.6 * 10^31 kilograms of gold. This is 1.9 * 10^27 cubic metres of gold weighing 317 times the complete mass of the Earth.

It is possible to achieve a much greater prosperity, with maximum capital growth without inflation, large debts, economic crises, unproductive government intervention and the unproductive part of the financial sector. Natural selection will ultimately determine the most efficient economic system, despite the political power structures that still exist at this moment. The investigation of alternatives and dissemination of knowledge will accelerate this process, but the ultimate outcome will not change.

More information:
http://www.naturalmoney.org/introduction.html

Bart klein Ikink Friday, November 6, 2009 at 5:11 AM PT

When the government gets involved there are always strings attached; too many strings. The banking industry has been controlled (regulated) by government for 70-plus years. What happens in the industry happens because regulators allow it to happen; including the greed we see now. If a free-market system had been allowed to develop over the past 70 years greed would still exist, but system would never have allowed it to get to the point we see now under government control.

Stan Wells Friday, November 6, 2009 at 8:36 AM PT

Capitalism works; it will work in the banking industry too. Free markets will hold in check the greed inherent in human nature. The greed we must fight is that of politicians and regulators to have control. Free markets cannot hold that in check, and once control of free markets is gained by the government they are no longer free. Wresting control from government is only done at great cost, e.g. Fascism, Nazism, Communism, and–I have to add–well-intentioned Socialism.

Stan Wells Friday, November 6, 2009 at 8:56 AM PT

Big Government is the problem. We have taken the thing that makes Capitalism work out of it. Failure. We have saved that for the people to come.

Mark Friday, November 6, 2009 at 9:29 AM PT

Sramana, excellent article and perspective about Capitalism.
some government actions & regulations [deemed necessary for the good of the greater public] can actually be the very acts that prevent the self-correction of Capitalism.

I think what is worse than not having a recovery is when learned minds decide to move away from innovation due to the monetary rewards that exist disproportionately due to Capitalism not being able to self correct.

Ibrahim Iqbal Saturday, November 7, 2009 at 9:51 AM PT

amazing observations, especially on the core assumption of ayn rand and the flaw thereof. however even regulation can be problematic. galbraith said the lifecycle of a regulatory body is that it is born and vigorously regulates, then it matures, and then it eventually becomes one with what it is supposed to regulate and becomes meaningless.

freefund Saturday, November 7, 2009 at 10:30 PM PT

Some of the overindulgent behavior that occurs in capitalism might be curbed with more transparency built into the system. If the “talented” titans of Wall Street had been building airplanes, their products would have crashed because their industry lacked the proper mechanisms to prevent bad judgment, choices, and methods.
It’s hard to hide gravity, but in the financial industry, the cause and effect of poor management and practices is not as apparent until lives start to be ruined. By then, the damage is done and those making money have already gotten their paychecks.
When you have too many of the “fox” types (investment guru’s) guarding the hen house, they seem to develop an enormous sense of self worth. Of course they feel they deserve millions in pay, plus bonuses, because the other guy at the other bank makes that much too.
Where is the reality check? There are teenaged runaways, living in the woods, hiding from belligerent, distraught parents who have lost their jobs in this bad economy leaving their home life in shambles. Do the well paid executives who drive home to beautiful neighborhoods and large homes care or feel at all connected to the suffering of others? Probably not much.
The problem with capitalism is that the “costs” are hidden or ignored. They are not there unless you care to look for them. For example, the costs of cigarettes include massive medical bills, loss of quality of life, and premature death. These costs are not factored into the price of the product. Why? Because we tolerate a lack of transparency. The tobacco companies are getting away with murder and making billions. We let this happen in the good of USA.
I graduated from business school, and then nursing school. The contrast between the personal ethics and mindset of the two schools was sharp. Nursing school was much more demanding, from the point of view of being a human being. Empathy in business is optional, at best, and only relevant if it improves the bottom line. In nursing school, being a patient advocate is an essential duty expected of a nurse. If nurses were in charge of investment banking, they would guard the assets with their lives. And they couldn’t possibly accept millions in pay because on a gut level, it just seems absurd.
The types who are attracted to be titans in the financial world need a system that provides for more transparency so that when reality (like gravity) threatens to pull the plane to the earth, the right corrections are taken to prevent damage. Expecting them to just “be better people” is naive.
I wish there were a bank I could put my money into that had executives and management that I admired. Even if the returns weren’t as high and the investment style not as aggressive, I’d feel good about my choice of bank.
Anyone want to start a new bank? Integrity Savings?

Lydia Brandes, R.N. Sunday, November 8, 2009 at 5:40 PM PT

Regulation is the response to somebody’s notion that people are using their liberty to make the wrong decisions. “Wrong” in the opinion of some superior being who thinks he is more enlightened than the rest of humanity. Usually the disdained decisions are made relative to some other regulation.

Why did the crooks take over Wall Street? Because regulations created perverse incentives that made crooked behavior lucrative. The crooks drove out the honest individuals who refused to do the dishonest things made rewarding in the regulatory environment.

Before Prohibition, there were few crooks in the liquor business. During Prohibition the only people in the liquor business were crooks. Al Capone owed his fortune to government regulation.

Hayek points out that the extended order of voluntary human interaction based on mutual benefit (commonly called “the Free Market” or “Capitalism”) is the most complex thing in the universe; how is human ingenuity going to regulate it to make it better? If you think we are smart enough to regulate and improve complex spontaneous systems, consider how well we did managing the ecosystem of Yellowstone Park, and how wrong all the experts were about the effects of the fire that was the result of the experts’ management.

Yellowstone’s ecology is simpler than the extended order.

Greg Norton Sunday, November 8, 2009 at 8:59 PM PT

The bug in the system is that we need to elect a leader with integrity. We don’t have to have integrity, though it helps, but we need to have leaders and laws that enforce the kind of integrity we need. So have said good leaders from Pericles to Washington.

We didn’t elect leaders based on character, therfore, we’re in trouble.

This is simple stuff, except for finding a leader with integrity 🙂

Herbie Monday, November 9, 2009 at 10:19 AM PT

Re: Yellowstone’s ecology is simpler than the extended order.

That’s a problem too 🙂

Herbie Monday, November 9, 2009 at 10:20 AM PT

Regulation is not the answer. Regulation only represents some entity’s notion of “how” the individual should achieve his results. Law represents forbidden ways of achieving results–i.e., unethical behaviors. The problem with Madoff was not a lack of regulation; it was a lack of enforcement of the law by individuals charged with doing so. Capitalism requires competition to work properly, and there are laws to ensure that competition is maintained. Unfortunately, misguided individuals in government have, for their own benefit, passed laws or regulations that do not foster competition. Until there is a method of weeding out those in government who would use their positions to obtain power or wealth, Capitalism will not work the way it should, in theory, function. The answer is not to get rid of Capitalism, it is to achieve the difficult goal of an informed electorate with a functioning memory of the behavior of its leaders.

Jim Lowell Tuesday, November 10, 2009 at 8:23 PM PT

Well said Jim. but the incompetence of a regulaonly gives them more money. Witness the enhanced budget and power of the SEC. They actually had a lawyer say that ponzi schemes were none of their business. the lawyers prefer to write intricate new regs which enhance their career rather than focus on clear fraud which is what congress intended.

marc heilweil Wednesday, November 11, 2009 at 4:44 PM PT

should say regulators

marc heilweil Wednesday, November 11, 2009 at 4:46 PM PT

You are missing the point that there is a world of difference between government support of business vs. government support for freedom of business. The one gives open competition and the other locks out competition. Can you guess what we have today?
If you want confirmation of how Ayn Rand saw this check out the Mike Wallace interview, near the end
The mistake is yours, Not ARs. Cheers, gs

garret seinen Sunday, November 15, 2009 at 12:37 AM PT

I don’t think, practically speaking, the government would go away or not regulate businesses.

There are 2 options: either government has to let banks fail, and self-correct that way. Or they have to require much larger capital reserves within banks as cushions against shocks like what we’ve seen recently. That would also mean 50% of bank profits cannot be siphoned out as compensation. I don’t think the former would happen given where we are. The latter, however, could be a very reasonable solution.

Sramana Mitra Sunday, November 15, 2009 at 5:08 PM PT

Sramana, Thank you for sending your emails all this time. Finally I pursued a link and found this magnificent BLOG. An hour of careful reading and here I am.
I, too, have had Ayn Rand’s principles sizzling in my depths, hoping, yaknow, hoping, that our leaders have read them too. It has become more and more obvious that they have not and are all in a mad rush to be the shepherds and cowboys, while convincing us we are the sheep.
Imposed, governmental regulations will not do it. Do you forget that regulations are written by lawyers; of course, after they gather input from the technologists of the industry to be controlled. [Ah, there. It slipped out. is there a difference, from the point of view of the governed, between regulating an industry and controlling it?] So, to whom do the lawyers report? Is it possible that they will put weasel wording (prestiverbiation) in the regulations that will favor those to whom they report? Do you, Sramana, have the legal training and the time to read, analyze and recommend changes to 2100 pages of regulations, every time they turn around? Will the lawyers you hire do it? And if they do ask for changes, clarifications or amendments, will they be honored?
Deceit is every bit as wrong as is the use of force. When a polititian lies or a lawyer lies and we act on their statement and we lose $500K, should they be required to reimburse us. We are possibly making life and death decisions based on their statements. Should they face capital punishment if we die as a result? I am not necessarily being facetious. Let’s bring Ayn Rand’s other great value, Truth, to the fore.
Please keep it up. When ‘they’ focus their attacks, as ‘they’ are doing now with Capitalism, you know that it is important to come to the aid of Capitalism.
Don

Don Brayton Monday, February 22, 2010 at 6:41 PM PT

Regulation throughout history has been a double-edged proposition. It is how we enforce the laws that govern our society, but to comes with a lot of unintended baggage – not the least of which is competence.
Having just finished “The Big Short” by Michael Lewis I ask the following two questions:
(1) Where are you more likely to find more intellectual power and creativity – Wall Street and Silicon Valley or the Federal Bureaucracy (any agency will do, including the Post Office)?
(2) The second question is the same, but substitute Congress for the bureaucracy.
There is no question in my mind as to the answer to both questions – Wall Street and Silicon Valley can and will run circles around those who draft and enforce any regulation that we, in our best efforts, wish to write.
Therefore, I don’t think that the answer is more or better or more compassionate laws and regulations – these tend to produce all sorts of unexpected and unplanned for consequences.
The answer is, very simply, greater individual responsibility and accountability.

Sandy McMahon Monday, May 17, 2010 at 5:27 PM PT

Agreed. Elusive though, individual responsibility, accountability and integrity. Greed seems to have overshadowed all other finer values.

Sramana Mitra Monday, May 17, 2010 at 5:49 PM PT

Regulation has failed us because the regulators can be corrupted. There is nothing in our economy which cannot be moved or influenced. I think that is at the heart of the matter. Imagine living in a universe where the sun might not shine for two weeks or Newton's laws can be moved at will. Regulation means nothing, because it is flexible and so is the system. Ayn Rand's principles are too hard to live with. We cannot live with pure capitalism because the corporation in its function will always seek security of supply and demand. I, we, it's servants want a job next week. Ayn rands ideas function like the universe. Wherein, we could be destroyed (fired) the moment some engineer comes up with a better mouse trap or a free energy device. The purpose of our intellect is to manipulate our environment so we will not be killed by the next meteor. So that we will not have to worry about the whims of nature in a violent universe. Rand's entire philosophy is flawed, because it goes against human natures impulse to control ones environment. Which means I will move heaven and hell in an effort to create something stable out of chaos.

oneforall Saturday, November 27, 2010 at 11:00 AM PT

Capitalism by definition is a system that favors those with capital. Capital allows one to invest in the means of production. As revenue is generated, those with the capital enrich themselves. Over time, capital concentrates.

If the government doesn't break that cycle (antitrust laws, taxes..) efficiently, then wealth will be controlled by fewer and fewer people. This is what we're seeing today.

Entrepreneurs are the only private agents who can break the cycle especially in the IT sector because it doesn't require much capital, operating costs and has global reach from day one.

So if anyone is going to make the world a better place it's going to be the geeks! 🙂

Albert Thursday, March 10, 2011 at 11:28 PM PT

Lot of truth to what you’ve said, Albert.

Sramana Mitra Friday, March 11, 2011 at 11:08 AM PT

That's non-sense! You say we should not impose things on people then you go on to say we need regulation. Maybe very little is neccassary…but any more then a drop in the bucket is too much…its too much barriers to entry, competition, growth, effeicency, and innovation.

Steve Stanley Friday, February 3, 2012 at 8:36 PM PT

Sramana –

You said:

"Most of the world does not think rationally. This is why law and regulation become necessary. "

So your basic justification for regulation is the assertion that most human beings don't think rationally?

Ok – Let's concede this assertion for the moment and see where it leads us.

First, if most human beings don't think rationally, exactly how can you be sure that a given set of politicians and bureaucrats – who are also human beings – are going to behave rationally when they have to design these laws and regulations? Or are you saying that politicians are somehow super-human beings who are more rational than the rest of us irrational folks?

Second, the bureaucrats who are supposed to designed these laws and regulations are appointed by politicians. Assuming that we live in a democracy, these politicians are elected by the people of the country. However, if the people are mostly irrational as you assert, then you'd expect that they would also vote irrationally. And if they have voted irrationally, then how do you expect that the politicians that have been elected through this process of irrational voting will all be very rational? And if the politicians aren't rational, then how do you know that the bureaucrats they've appointed will be rational?

The only way your argument holds any water is if you make an additional assumption – which is that while human beings are mostly irrational in their day-to-day lives, the moment they step into the voting booth, they become paragons of rationality. And once they step out of it, they quickly go back to their irrational selves. Without making this assumption, you cannot use the alleged irrationality of human beings to justify the need for politicians and bureaucrats to regulate free markets.

Therefore, as you can see, the alleged irrationality of human beings is no justification for any regulation whatsoever assuming you are living in a democratic country.

Please review the following article by David D. Friedman: http://www.daviddfriedman.com/Academic/mps_icelan

In addition, the main point in your article seems to be that human beings are greedy and have no conscience and therefore, this somehow justifies regulation of free markets.

What you are forgetting is that free markets, provided they are allowed to function, themselves have in-built regulations for regulating human greed. And if your response to that is that "If free markets regulate themselves, then why did we have this financial crisis?", that's simply because this financial crisis, unlike what you would have read in the media or what you would have been told by politicians, was not caused by a lack of regulation, but by an excess of regulation. The reason we had this financial crisis is precisely because of the ABSENCE of free markets.

Please review the following video lecture series from the Ayn Rand Center: http://arc-tv.com/the-financial-crisis-what-happe

Another video on what caused the crisis: http://www.aynrand.org/site/PageServer?pagename=r

Sumantra Monday, April 2, 2012 at 2:20 AM PT