Basic Thinking

It’s tempting to overreact to anything unpleasant: bee stings, poison ivy, childhood fears, bank fraud on a massive scale; that kind of thing. While it may be difficult to at the moment, it might be worthwhile to remember a few basic principles: Free enterprise depends on honest exchange of information between buyer and seller; gains of trade (in the neoclassical sense) are gains of differential ability, not deception or failure to deliver. Leverage is a very dangerous thing; that was much of the reason for the Great Depression, as one failure multiplied throughout the system as easily as profit had multiplied before. Regulation does not prevent fraud, fraud is already illegal; regulation simply puts speedbumps in the system that at best limit the speed and scope of fraud and at worst create playing fields for whole new kinds of corruption. The U.S. (and most Western European) economy has been considered “mixed” since the 1930s (as distinct from purely market); complexity and classification create opportunities for Rent Seeking behavior as surely as over reliance on word-of-mouth created railroad stock fraud in the nineteenth century.

For some previous thinking: Crisis as Cartoon, McCastles Built on Air, The Fraud Problem, A Snippet from Max Weber, Cash Flows - A Diagram