Financial crisis? It's the University of Chicago's fault
I was watching Chicago Tonight on PBS the other week and they had a segment about the current financial woes, featuring a professor from the University of Chicago.
It seems that the blame game has included the "Chicago School of Economics" which gained international acclaim largely thanks to Milton Friedman and his Nobel Prize. As summarized by the commentator, the Chicago School leans heavily towards free markets and away from regulation.
It is this philosophy that has come under fire - that the current banking and financial market fiasco was caused by too little regulation. That this demonstrates the Chicago School does not work.
The professor predictably disagreed, but his reasoning was quite interesting.
He pointed out that banking and financial services have historically been highly regulated. This high degree of regulation leads to excessive risk taking around the edges of the regulations. This excessive risk taking is what produced the exotic financial instruments at the core of the collapse.
I found myself thinking more and more about this and how it intersects with human nature and wonder if there is a deeper explanation.
In the absence of rules, individuals have no choice but to be guided by their own iternal compass of right and wrong. Does the presence of rules relieve individuals from having to make these right/wrong decisions?
Could it follow that if a specific rule prohibits an action, then the absence of that rule makes the action acceptable? Would this be exasberated in industries that are heavily regulated already?
Perhaps those in the financial services industry simply surrendered their right/wrong compass to the regulators and spent all their energy finding and exploiting the complex and unsustainable loopholes.
Ponder that all my fellow dime-store psychoeconomists.
It seems that the blame game has included the "Chicago School of Economics" which gained international acclaim largely thanks to Milton Friedman and his Nobel Prize. As summarized by the commentator, the Chicago School leans heavily towards free markets and away from regulation.
It is this philosophy that has come under fire - that the current banking and financial market fiasco was caused by too little regulation. That this demonstrates the Chicago School does not work.
The professor predictably disagreed, but his reasoning was quite interesting.
He pointed out that banking and financial services have historically been highly regulated. This high degree of regulation leads to excessive risk taking around the edges of the regulations. This excessive risk taking is what produced the exotic financial instruments at the core of the collapse.
I found myself thinking more and more about this and how it intersects with human nature and wonder if there is a deeper explanation.
In the absence of rules, individuals have no choice but to be guided by their own iternal compass of right and wrong. Does the presence of rules relieve individuals from having to make these right/wrong decisions?
Could it follow that if a specific rule prohibits an action, then the absence of that rule makes the action acceptable? Would this be exasberated in industries that are heavily regulated already?
Perhaps those in the financial services industry simply surrendered their right/wrong compass to the regulators and spent all their energy finding and exploiting the complex and unsustainable loopholes.
Ponder that all my fellow dime-store psychoeconomists.
posted by Imagescape @
11:50 AM
0 Comments
0 Comments:
Post a Comment
<< Home