Thoughts on Something Milton Friedman Said

[Exsubmariner]

Milton Friedman once said something to the effect that corruption is government intervention in market efficiencies in the form of regulation.

This is often ballyhooed as the argument against government regulation in any form. That premise, in turn, is used as the basis for an arguement that in a completely market driven society, government is wholly unnecessary.

I submit that government intervention in the market is a necessity, however. I base this on the premise that there are certain market inefficiencies. One market inefficiency occurs in the case of fraud. Widespread bank and securities fraud sparked the great depression. Most recently, Sarbanes-Oxley was passed in the wake of widespread fraud regarding financial statements. The stage was set for this fraud to continue indefinately unabated without the action of government. Participants in markets are human. There will always be less than honest and ethical actors in a market. The government is the mechanism through which these actors are forced out of the market. Therefore, government intervention in the form of regulation is not a bad thing in the face of market inefficiency.

Thoughts/opinions/controversy/arguements?

[Borodog]

Monetary inflation caused the Great Depression, and the New Deal exacerbated and lengthened it.

[pvn]

SOX is nothing more than a corporate welfare for auditors.

[Exsubmariner]

If we must have this discussion, than so be it....I knew you were going to bring this up.

The Great Depression was facilitated by a run on the banks and the crash of October 1929 which lead to a collapse of the capital markets. Monetary inflation and the new deal are only part of that story. In fact, there were massive purchases of stock on the part of the major financial interests of the day (Rockerfellers, Vanderbilts, Morgan) to try to stem the tide of the market but were unsuccessful in doing so. The drving force behind the run on the banks was the fear of insolvency. The collapse of the stock market was driven in a major part by the calling in of large numbers of options that could not be covered by the holders of those options. Much of the rampant speculation taking place was based on faulty financial data and rumor. The brokerages called in the options to prevent losing everything. The whole thing was driven by mistrust caused by deceipt.

I think that next you are going to say that without monetary inflation, there would not have been so many false investments. Does monetary inflation lead to market inefficiency then, by encouraging deceipt that leads to rampant speculation and irrational exhuberance?

[Exsubmariner]

[ QUOTE ]
SOX is nothing more than a corporate welfare for auditors.

[/ QUOTE ]

Enron, Worldcom, Adelphia, Global Crossing, etc were welfare for auditors.

[pvn]

[ QUOTE ]
[ QUOTE ]
SOX is nothing more than a corporate welfare for auditors.

[/ QUOTE ]

Enron, Worldcom, Adelphia, Global Crossing, etc were welfare for auditors.

[/ QUOTE ]

O RLY? I don't know if you noticed, but authur anderson went out of business.

[Exsubmariner]

[ QUOTE ]
[ QUOTE ]
[ QUOTE ]
SOX is nothing more than a corporate welfare for auditors.

[/ QUOTE ]

Enron, Worldcom, Adelphia, Global Crossing, etc were welfare for auditors.

[/ QUOTE ]

O RLY? I don't know if you noticed, but authur anderson went out of business.

[/ QUOTE ]

That's only because the SEC showed up and put the kabosh on them.

[pvn]

[ QUOTE ]
I think that next you are going to say that without monetary inflation, there would not have been so many false investments. Does monetary inflation lead to market inefficiency then, by encouraging deceipt that leads to rampant speculation and irrational exhuberance?

[/ QUOTE ]

It encourages bad investment, because there's so much cheap money laying around, and people have to put it somewhere. Some fairly reputable magazine (businessweek maybe?) actually printed this as an argument against capital gains tax cuts- the extra money would go into bad investments because there would be more money than their "should" be.

[Exsubmariner]

So, the record levels that the DOW is at right now are only driven by there being "too much money."

I have to ask the next logical question, then....How much money should there be?

[Borodog]

[ QUOTE ]
So, the record levels that the DOW is at right now are only driven by there being "too much money."

[/ QUOTE ]

No.

[ QUOTE ]
I have to ask the next logical question, then....How much money should there be?

[/ QUOTE ]

It doesn't matter.