Note to Federal Reserve on Regulations: Step Down

News September 23rd in the US print edition of the Wall Street Journal reinforces how our mad love of regulation will ruin us. In “Fed to Curb Commodity Trading“, we hear of proposed rules that would impose massive capital charges in banks that trade in commodities. The problem being solved is that banks take risks and under excessive condition (i.e. black swan events) such financial firms might put the financial system at risk.

The problem here is that two forces are pitted against each other:

  • The need for risk taking which promises high returns drives innovation and productivity
  • The desire to reduce risk in order to preserve stability and avoid huge loss

Risk involved loss, and not all losses are bad. In fact some would say loss is good (i.e. creative destruction). The current government seems bent on destroying our ability to grow our economy in the name of such regulations. They say these rules are for our own benefit: the result being slower growth, increased inequality, lower wages, and now greater threats from afar.

If you add to this the inexorable growth in government spending, you can see that capitalism is being throttled and socialism is alive and well. The challenge is that no politician today will run on a ticket stating what needs to be done: they would not be reelected.  But I wonder: would the electorate reward a politician that shuts down half the government, for good?  


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