Every Sensible Person Understands the Reason for Rules; Too Few People Understand that Rules are Not Synonymous with Government Dictates

by Don Boudreaux on March 30, 2009

in Complexity & Emergence

Here’s a letter that I sent a couple of weeks ago to a CNN on-air personality:

16 March 2009

Mr. Rick Sanchez, Host, CNN NewsRoom

Dear Mr. Sanchez:

Re your interview today with economics students at Georgia State University: when a young man said that he is skeptical of government regulation and that he values individual liberty, you derisively accused him of believing that the economy would work well “without any rules.”

The smug assurance of your accusation reveals your gross misunderstanding of the case for free markets.  That case is not that rules are unnecessary.  Rather, it’s that rules written by politicians and enforced by bureaucrats generally work much less well than do rules that emerge decentrally – rules that evolve from the voluntary interactions and successes and mistakes of individuals each pursuing his or her own goals without being herded by a central authority – rules that are enforced by competition and by the exercise of personal responsibility and that, when sufficiently important, become formalized in case law declared by courts.

The distinction between what you think of as rules and the kinds of rules that permeate successful market economies is perhaps subtle.  But it’s also real and important.  You should try to grasp it.

Sincerely,
Donald J. Boudreaux

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{ 27 comments }

vidyohs March 30, 2009 at 5:58 pm

I spent the entire day today experiencing my first day of volunteering to teach success skills to K6 thru K12 students at a local high school. All the students are considered "at risk" kids for one reason or another, not all the same reason.

When asked the question, "Does anyone know what captialism is." One boy answered carefully, "Thats rich people taking from poor people, isn't it?"

I emphasized that captialism and trade are nothing more than tools used by voluntary humans and not in any way evil or compulsory.

A tool is not evil nor can it be made evil, whether it is a pen, a shovel, a gun, or a system of increasing profit through investment. A tool can not be greedy, angry, wordy, irritating, loving, or any other human emotion or character trait. A tool is an object to be used by people, trade and captialism fit that description.

I have 6 more Mondays with these kids and I am doing everything I can to provide them with the information that they need to know that they have to stop wasting time, prepare, get an education, develop some people skills, and get ready to become self sufficient.

We don't need more of the Rick Sanchez types. I feel blessed to find and have this opportunity because getting out and making some kind of difference on the street is something I see as crucial.

Thanks to a lot of input over the last two years from the hosts and many of the participants, I have gained new knowledge and refined old.

I don't know of any other way I can make a difference beyond the immediate circle of family.

Bret March 30, 2009 at 6:30 pm

I personally would want to see a bit more context than a three word quote ("without any rules") before judging Sanchez too harshly.

Methinks March 30, 2009 at 6:45 pm

When asked the question, "Does anyone know what captialism is." One boy answered carefully, "Thats rich people taking from poor people, isn't it?"

Oh good Lord! Why don't we just stick Karl Marx's mug in the front page of every textbook with the caption "grandfather Karl Marx" and quit pretending?

Go get 'em, Vidyohs.

Don Boudreaux March 30, 2009 at 6:53 pm

Bret,

Fair point. But I watched the entire segment — which lasted for several minutes. (I was stuck in the Denver airport and couldn't really avoid it.)

Sanchez clearly thought this young man was dumb as a pigeon for expressing such views. And while interviewing, in the same show, an economist whose name I have forgotten, Sanchez repeatedly tried to put words into this guy's mouth — words suggesting that capitalist acts are the root of the problem and that greater regulation by government will solve matters.

Daniel Kuehn March 30, 2009 at 7:03 pm

Out of curiosity, do you have the link Don? Hopefully it wasn't as egregious as vidyohs's experience!

It's one thing to say that regulations may help. It's not an ignorant position on it's face. It is ignorant to pretend that regulations are the only rules that order markets.

Don Boudreaux March 30, 2009 at 7:13 pm

Daniel,

I don''t have a link, but I suppose that it might be available at CNN.com. The date was March 16th.

Don

Daniel Kuehn March 30, 2009 at 7:17 pm

haven't found it left, but this is good for a laugh:

http://www.youtube.com/watch?v=yEEwPRhJGmU

Daniel Kuehn March 30, 2009 at 7:17 pm

*found it yet

Daniel Kuehn March 30, 2009 at 7:21 pm

http://ricksanchez.blogs.cnn.com/2009/03/17/bad-banks-where-was-the-regulation/

Ta da!

I know you tried to teach me, MnM – oh well… just gotta cut and paste this one in.

Daniel Kuehn March 30, 2009 at 7:29 pm

By the way – I just started reading this from brookings: http://www.brookings.edu/papers/2008/11_orgins_crisis_baily_litan.aspx

It's very interesting and good insofar as it does not blame the presence or absence of regulators specifically – but it does highlight important ways in which the normally operating self-policing rules of markets broke down. The authors highlight asymmetric information at each step of the MBS securitization process and describe how normally this asymmetric information would encourage the parties to the transaction to scrutinize risk more closely, and why they didn't seem to this time over the last five to ten years. The presentation is a lot more convincing to me than the "Barney Frank made them lend this stuff" and the "bankers were greedy and they tricked poor people" narratives that you hear a lot.

Daniel Kuehn March 30, 2009 at 7:34 pm
MnM March 30, 2009 at 8:16 pm

I knew you could do it Daniel!

I failed the first few times I tried to make a hyperlink too. You just need to practice. In a month or so, it'll be second nature.

floccina March 30, 2009 at 8:34 pm

wow rick Sanchez is a bafoon.

Sam Grove March 30, 2009 at 9:18 pm

We must always be suspicious of political regulation of the economy.

Why?

We must be aware of who writes these regulations and what kind of input goes into their creation.

While politicians are adept at assuring us that they are watching out for us, they are also adept at looking out for their position, their power, and the next election.

Economic calculation rarely plays a part in the creation and implementation of such regulation.

The title of an act is meant to assuage voters, the contents are meant to assuage market incumbents.

Oil Shock March 30, 2009 at 9:32 pm
kingstu March 30, 2009 at 9:33 pm

Reason: So if you think that the consumer, ignorant as he is, ought to be protected by a government regulator, then you should really believe that the government regulator ought to step in and police the speech of professors or politicians or pundits.

Coase: That's right. If the government is competent to do the one, it's competent to do the other.

Reason: Then there ought to be a federal philosophy commission.

Coase: That's right. The press was horrified by the idea. If the argument is exactly the same for regulating the press as for regulating peaches, this meant that I was arguing for regulation of the press.

http://www.reason.com/news/show/30115.html

Christopher Renner March 30, 2009 at 9:35 pm

I would agree totally that Sanchez is an ignorant demagogue. This became very apparent at the end of the linked clip when he described Glass-Steagall as separating "the Jimmy Stewart banks from, uhh…the hedge fund guys". Hedge funds, investment banks, they're all evil, right?

Daniel Kuehn, you might check out the Wikipedia on BBCode, which has a good reference table for the HTML codes typically used in comments and the like. This blog uses the HTML codes with the chevrons, not the BBCode square bracketed examples.

John Pertz March 30, 2009 at 10:31 pm

What are you gonna do? CNN has obviously borrowed a technique from Bill O'Reilly where by the host gets spitting mad-repeat s a mantra over and over and over again-in order to simplify things for people and brake an incredibly complex issue into small digestible bites for an explicitly non-intellectual audience. Did you really think the libertarian kid or the dudes with baggy jeans and oversized shirts really know that much about anything?

I think the economist being interviewed had the appropriate reaction, he merely laughed because the whole segment was so asinine.

The sideways cap kids looked almost totally dazed and confused and then they oddly agreed like programed automatons.

Gil March 30, 2009 at 11:00 pm

"Rather, it's that rules written by politicians and enforced by bureaucrats generally work much less well than do rules that emerge decentrally – rules that evolve from the voluntary interactions and successes and mistakes of individuals each pursuing his or her own goals without being herded by a central authority – rules that are enforced by competition and by the exercise of personal responsibility and that, when sufficiently important, become formalized in case law declared by courts." – D. Boudreaux

Heh heh, Don does it again! This is what anarcho-Capitalists argue except they argue that the laws, police and courts are provided by private institutions in actual competition with each other.

Daniel Kuehn March 31, 2009 at 5:57 am

John Pertz -
RE: "CNN has obviously borrowed a technique from Bill O'Reilly where by the host gets spitting mad-repeat s a mantra over and over and over again-in order to simplify things for people and brake an incredibly complex issue into small digestible bites for an explicitly non-intellectual audience"

I think you hit the nail on the head. Rick Sanchez isn't going to usher in a new era of excessive regulation, but he is going to contribute to the dumbing down of news. This was an excellent argument in the NY Times yesterday about exactly this trend:
Cable News Stokes Political Fever

TrUmPiT March 31, 2009 at 12:12 pm

"When asked the question, 'Does anyone know what captialism is.' One boy answered carefully, 'Thats rich people taking from poor people, isn't it?'

I emphasized that captialism and trade are nothing more than tools used by voluntary humans and not in any way evil or compulsory."

You are wrong and that little boy has mucho insight into the essence of capitalism. Capitalism is the rich stealing from the poor, and it is both compulsory and evil as configured in these (Bush's) United States. You are doubly naive and ignorant like a Rick Sanchez on illegal steroids. You are like those door-to-door proselytizer selling fertilizer – the kind that doesn't make stuff grow, but stinks to high heaven.

It's not nice to try to brainwash kids and make what's happening to the U.S. and world economy seem like a lesson from Pilgrim's Progress or ordained from on high. The entire economy is "at risk," or should I say, "at Rick's!"

Bret March 31, 2009 at 1:04 pm

I Watched the segment (thanks to Daniel Kuehn for the link) and here's my approximate transcipt of the segment Don refers to:

Sanchez [to "Young Man"]: So there should be no rules at all?

"Young Man": Obviously there need to be some rules…[inaudible]

Sanchez [to crowd]: Do people here disagree with what he said?

Crowd: [Murmurs assent]

Sanchez [to crowd]: How much do you disagree?

Crowd: [Somewhat more energetic response]

Sanchez [to Young Man]: But they still love you and you're a smart guy…

It's obviously a subject perception, but I didn't see Sanchez as being derisive to the "Young Man" at all. Ending with "you're a smart guy" seemed like he was trying at least appear to be reasonably nice.

In a four minute sound bite, Sanchez interviews a professor who clearly disagrees with him and the only person in the crowd he questions is someone who clearly disagrees with him. These things are never fair and balanced but I'd say this one is better than average.

On the other hand, Don is clearly correct from the rest of the segment that Sanchez is highly confident that extensive government regulation is absolutely necessary to keep our money safe and protect the little people.

Yet, this is not provably untrue. While it may hugely reduce prosperity, perhaps even drive the economy into the ground and force us all to try to scratch a living from the dirt, having armies of regulators track and control every dollar may well make the financial system more predictable and therefore "safer". You have to try to remember that others have different ideologies and different things that are subjectively important to them than those so strongly felt by most people in this forum.

Crusader March 31, 2009 at 3:42 pm

That poor kid is brainwashed and has zero understanding of how wealth is created in the first place.

Crusader March 31, 2009 at 3:44 pm

However I must posit that the term "capitalism" is political poison and should be avoided from now on. For those of us who cherish our remaining freedoms, we best keep a lid on it.

vidyohs March 31, 2009 at 5:01 pm

STrUmPiT,

I know.

ohwilleke March 31, 2009 at 11:06 pm

A judge is just a bureaucrat with a good education, lots of authority, and a relatively good pay package, and a judge's edicts are ultimately enforced by executive branch officials if push comes to shove.

Law ultimately comes from politicians. The drafters of the constitution were politicians and common law cases exist only because politicans choose not to modify them.

lukas April 1, 2009 at 2:24 am

But at least law is something you can rely on. In a normal bankruptcy, the rules are pretty clear. Now they are just making the rules up as the go along.

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