Friday, October 14, 2011

Politicos Through the Mechanism of Government: Busting Bubbles and Benumbing Freezes

John B. Taylor in his book Getting Off Track makes the most excellent point that politicos through the mechanism of government created financial policy in regards to home ownership and the finance thereof [1978 - 2007] along with another branch of government [the Fed] creating a cheap money bubble [2002-2004] that set the table for the ensuing financial shenanigans. If one sets the table for shenanigans one should not be surprised that shenanigans actually do occur. -Or- if one sets the table for financial shenanigans then do not be surprised when financial shenanigans actually occur. (1)

Keeping the above observation in mind, what happens when politicos through the mechanism of government create a regulation machine that increases regulation at an increasing rate [1930 - present]. That the regulation increasing at an increasing rate, and in its regulatory summation, becomes a veritable mountain of regulation. That the mountain of regulation becomes a mountain chain of regulation [2008 - present]. Has another table been set for shenanigans?

If the financial crisis was a bubble created by politicos through the mechanism of government, which was merely a central planning scheme, then is regulation merely another central planning scheme, created by politicos through the mechanism of government, to create a “freeze”?

Moreover, if the fermentation of the effervescent bubble creating the financial crisis was approximately time period 1978 -2007, what about the benumb chill of the freeze of regulation with time period 1930 to present? If the financial crisis fermented for 30 years, does the benumbing effect of regulation over 80 years create a regulatory crisis of even greater magnitude than the financial crisis?

Finally, the 30 years of fermentation of the financial crisis was brought to the busting bubble stage by the cheap money effect of the Fed. Does the benumbing effect of mountains of regulation become a total freeze stage (the antithesis of the busting bubble) through a sudden and encompassing hyper-regulatory effect e.g. regulatory policies of 2008 to present embodied by Dodd-Frank, Consumer Protection Agency, EPA, Department of Energy, etc., etc..

In both instances, politicos through the mechanism of government have exercised central planning schemes known as financial policy and regulatory policy. One must consider such central planning schemes by politicos with the following insight:

This way lies charlatanism and worse. To act on the belief that we possess the knowledge and the power which enable us to shape the processes of society entirely to our liking, knowledge which in fact we do not possess, is likely to make us do much harm.

But in the social field the erroneous belief that the exercise of some power would have beneficial consequences is likely to lead to a new power to coerce other men being conferred on some authority. Even if such power is not in itself bad, its exercise is likely to impede the functioning of those spontaneous ordering forces by which, without understanding them, man is in fact so largely assisted in the pursuit of his aims. - F.A. Hayek, from the essay The Knowledge of Pretense (2)


(1) John B. Taylor, Getting Off Track, pages 3 and 4.

(2) F.A. Hayek, 12/11/1974, Nobel Prize Lecture,

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