Economic regulation: coercive rule by political appointees vs. freely negotiated prices

"[M]ost people hold, explicitly or implicitly, that without regulation, markets could, and sometimes would, spin off into disastrous excesses of one form or another.

"The operative image of economic regulation is that of a huge truck without steering or brakes. 'We have to have those instruments of control, or the truck will go careening off the side of a cliff.'

"The truth is that government regulation is precisely the cutting of the brake lines and the seizing up of the steering column.

"The actual alternative is: government regulation vs. market regulation---which means coercive rule by political appointees vs. freely negotiated prices.

"On a free market, when price relationships begin to diverge from economic reality, they are brought back in line because of greed. Speculators, arbitrageurs, and other "profiteers" swoop in to profit from any misalignment.

"Their activity acts to eliminate the very misalignment with reality that created the profit opportunity. ... Whenever prices, including interest rates, diverge from economic reality, there is money to be made in correcting the prices by the appropriate buying and selling.

"And here's the best part: those with the best judgment of economic reality are the ones who make the most money, which means they have the most influence on the market. It is the buying and selling of the Warren Buffets (and their more speculative counterparts) that keep the economy aligned with the facts. ...

"But ... [t]o the extent there is government intervention, the minds of the profit-seekers are thwarted and rewards go not to the Warren Buffets but, at first, to the ward heelers and power brokers, then as the system devolves, power over the economy goes increasingly to those who are better at conning the public. Then, they are replaced by those more willing to use compulsion. The ruthless displace the relatively timid punks, and destruction reigns.

"So, people have it backwards. 'Unregulated' means reason sets the terms and 'regulated' means reason is quashed by political power."

~ Harry Binswanger from his post 'One contradiction in the fear of laissez-faire'