Responding to an article in today’s Wall Street Journal — an article written in response to Barney Frank’s idea that we need a new federal regulator to control systemic risk — George Mason University Economics Department Chairman Don Boudreaux writes this spot-on letter:
To the Editor:
Peter Wallison masterfully exposes the pitfalls in Rep. Barney Frank’s proposal
to create a “systemic risk regulator” (“Congress Is the Real Systemic Risk,”
March 17). But it’s worth emphasizing that we already have an excellent
regulator of systemic risks: the market. Because participation in any aspect of
the market is voluntary, each individual – risking only his or her own assets –
chooses how, and how much, to participate. The competition, personal
responsibility, and inherent decentralization characteristic of the market keep
systemic risks small.
Large systemic risks are created only when competition is replaced by monopoly
power, when decentralization is supplanted by centralized decision-making, and
when personal responsibility gives way to socialized ‘sharing’ of costs and
benefits. Government is the one institution capable of achieving this troika of
troublesomeness. The state’s control over the money supply is only the most
devious of the countless ways that government dangerously intrudes itself
systemically, and with no competition, into market transactions.
Sincerely,
Donald J. Boudreaux
Chairman, Department of Economics
George Mason University
Exactly! There would be no need to worry about risk in the aggregate if it weren’t for the fact that the federal government has done so much to lower people’s natural risk aversion.
