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Regulating Systemic Risks

Tweet [1]

The idea of having government regulate systemic risks is akin to trying to put out a fire by dousing it with jet fuel.  I explain in this letter [2]:

Editor, The Wall Street Journal


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 [3],"
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.


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.
Monopoly 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.



Donald J. Boudreaux