{"id":761,"date":"2008-10-13T17:12:48","date_gmt":"2008-10-13T21:12:48","guid":{"rendered":"http:\/\/www.jasetaro.com\/blog\/?p=761"},"modified":"2008-10-13T17:12:48","modified_gmt":"2008-10-13T21:12:48","slug":"an-open-letter-from-steven-horwitz","status":"publish","type":"post","link":"https:\/\/www.jasetaro.com\/blog\/2008\/10\/13\/an-open-letter-from-steven-horwitz\/","title":{"rendered":"An Open Letter From Steven Horwitz"},"content":{"rendered":"

Economist Steven Horwitz published this open letter<\/a> on September 28, 2008, if you haven’t read it you should.<\/p>\n

My friends,<\/p>\n

In the last week or two, I have heard frequently from you that the current financial mess has been caused by the failures of free markets and deregulation. I have heard from you that the lust after profits, any profits, that is central to free markets is at the core of our problems. And I have heard from you that only significant government intervention into financial markets can cure these problems, perhaps once and for all. I ask of you for the next few minutes to, in the words of Oliver Cromwell, consider that you may be mistaken. Consider that both the diagnosis and the cure might be equally mistaken.<\/p>\n

Consider instead that the problems of this mess were caused by the very kinds of government regulation that you now propose. Consider instead that effects of the profit motive that you decry depend upon the incentives that institutions, regulations, and policies create, which in this case led profit-seekers to do great damage. Consider instead that the regulations that may have been the cause were supported by, as they have often been throughout US history, the very firms being regulated, mostly because they worked to said firms’ benefit, even as they screwed the rest of us. Consider all of this as you ask for more of the same in the name of fixing the problem. And finally, consider why you would ever imagine that those with wealth and power wouldn’t rig a new regulatory process in their favor.<\/p>\n

One of the biggest confusions in the current mess is the claim that it is the result of greed. The problem with that explanation is that greed is always a feature of human interaction. It always has been. Why, all of a sudden, has greed produced so much harm? And why only in one sector of the economy? After all, isn’t there plenty of greed elsewhere? Firms are indeed profit seekers. And they will seek after profit where the institutional incentives are such that profit is available.<\/em> In a free market, firms profit by providing the goods that consumers want at prices they are willing to pay. (My friends, don’t stop reading there even if you disagree – now you know how I feel when you claim this mess is a failure of free markets – at least finish this paragraph.) However, regulations and policies and even the rhetoric of powerful political actors can change the incentives to profit. Regulations can make it harder for firms to minimize their risk by requiring that they make loans to marginal borrowers. Government institutions can encourage banks to take on extra risk by offering an implicit government guarantee if those risks fail. Policies can direct self-interest into activities that only serve corporate profits, not the public.<\/p>\n

Many of you have rightly criticized the ethanol mandate, which made it profitable for corn growers to switch from growing corn for food to corn for fuel, leading to higher food prices worldwide. What’s interesting is that you rightly blamed the policy and did not blame greed and the profit motive! The current financial mess is precisely analogous.<\/p>\n

No free market economist thinks “greed is always good.”<\/em> What we think is good are institutions that play to the self-interest of private actors by rewarding them for serving the public, not just themselves. We believe that’s what genuinely free markets do. Market exchanges are mutually<\/em> beneficial. When the law messes up by either poorly defining the rules of the game or trying to override them through regulation, self-interested behavior is no longer economically mutually beneficial. The private sector then profits by serving narrow political ends rather than serving the public. In such cases, greed leads to bad consequences. But it’s bad not because it’s greed\/self-interest rather because the institutional context within which it operates channels self-interest in socially unproductive ways.<\/p>\n

Read the rest…<\/a><\/p><\/blockquote>\n","protected":false},"excerpt":{"rendered":"

Economist Steven Horwitz published this open letter on September 28, 2008, if you haven’t read it you should. My friends, In the last week or two, I have heard frequently from you that the current financial mess has been caused by the failures of free markets and deregulation. I have heard from you that the […]<\/p>\n","protected":false},"author":2,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_genesis_hide_title":false,"_genesis_hide_breadcrumbs":false,"_genesis_hide_singular_image":false,"_genesis_hide_footer_widgets":false,"_genesis_custom_body_class":"","_genesis_custom_post_class":"","_genesis_layout":"","advanced_seo_description":"","jetpack_seo_html_title":"","jetpack_seo_noindex":false,"jetpack_post_was_ever_published":false,"_jetpack_newsletter_access":"","_jetpack_dont_email_post_to_subs":false,"_jetpack_newsletter_tier_id":0,"_jetpack_memberships_contains_paywalled_content":false,"_jetpack_memberships_contains_paid_content":false,"footnotes":"","jetpack_publicize_message":"","jetpack_publicize_feature_enabled":true,"jetpack_social_post_already_shared":false,"jetpack_social_options":{"image_generator_settings":{"template":"highway","default_image_id":0,"font":"","enabled":false},"version":2}},"categories":[26],"tags":[169,129,113,114,232],"class_list":{"0":"post-761","1":"post","2":"type-post","3":"status-publish","4":"format-standard","6":"category-economy","7":"tag-community-reinvestment-act","8":"tag-credit-crisis","9":"tag-fannie-mae","10":"tag-freddie-mac","11":"tag-steven-horwitz","12":"entry"},"jetpack_publicize_connections":[],"jetpack_featured_media_url":"","jetpack_shortlink":"https:\/\/wp.me\/pfpI7-ch","jetpack_sharing_enabled":true,"jetpack-related-posts":[{"id":596,"url":"https:\/\/www.jasetaro.com\/blog\/2008\/10\/03\/crap-sandwich-20-passes-the-house-263-171\/","url_meta":{"origin":761,"position":0},"title":"Crap Sandwich 2.0 Passes The House 263-171","author":"Jeff","date":"October 3, 2008","format":false,"excerpt":"The Wall Street Journal has the details: WASHINGTON -- U.S. House of Representatives lawmakers wary of growing signs of the nation's economic distress voted Friday in favor of a $700 billion Wall Street rescue package, sending the biggest government intervention in the financial markets since the Great Depression to President\u2026","rel":"","context":"In "Economy"","block_context":{"text":"Economy","link":"https:\/\/www.jasetaro.com\/blog\/category\/economy\/"},"img":{"alt_text":"","src":"","width":0,"height":0},"classes":[]},{"id":381,"url":"https:\/\/www.jasetaro.com\/blog\/2008\/09\/16\/how-did-we-get-here\/","url_meta":{"origin":761,"position":1},"title":"How Did We Get Here?","author":"Jeff","date":"September 16, 2008","format":false,"excerpt":"Ed Morrissey @ Hot Air asks \"Whose policies led to the credit crisis?\" The answer depends on who you ask... Democrats of course blame Republicans and Republicans of course blame Democrats. Personally, I think it's safe to point fingers at both parties and the Federal Reserve Board. The roots of\u2026","rel":"","context":"In "Economy"","block_context":{"text":"Economy","link":"https:\/\/www.jasetaro.com\/blog\/category\/economy\/"},"img":{"alt_text":"","src":"","width":0,"height":0},"classes":[]},{"id":532,"url":"https:\/\/www.jasetaro.com\/blog\/2008\/09\/29\/the-good-the-bad-and-the-ugly\/","url_meta":{"origin":761,"position":2},"title":"The Good, The Bad and The Ugly…","author":"Jeff","date":"September 29, 2008","format":false,"excerpt":"The Good (H\/T: MM): Congressman Jeb Hensarling (R-TX), Chairman of the House Republican Study Committee, today issued the following statement on the agreement reached by House and Senate negotiators on the Paulson plan, and his intentions on the final bill: \u201cMy top responsibility as an elected official is to protect\u2026","rel":"","context":"In "Economy"","block_context":{"text":"Economy","link":"https:\/\/www.jasetaro.com\/blog\/category\/economy\/"},"img":{"alt_text":"","src":"","width":0,"height":0},"classes":[]},{"id":573,"url":"https:\/\/www.jasetaro.com\/blog\/2008\/10\/01\/senate-passes-crap-sandwich-20-74-25\/","url_meta":{"origin":761,"position":3},"title":"Senate Passes Crap Sandwich 2.0 74-25","author":"Jeff","date":"October 1, 2008","format":false,"excerpt":"From the Wall Street Journal: Senate Passes Bailout Package House Passage Remains Less Certain WASHINGTON -- The Senate's revamped bailout package drew support from 74 lawmakers in a roll call vote Wednesday evening, and the measure will now return to the balky House of Representatives for another vote following its\u2026","rel":"","context":"In "Economy"","block_context":{"text":"Economy","link":"https:\/\/www.jasetaro.com\/blog\/category\/economy\/"},"img":{"alt_text":"","src":"","width":0,"height":0},"classes":[]},{"id":865,"url":"https:\/\/www.jasetaro.com\/blog\/2008\/10\/27\/ted-stevens-guilty-on-all-counts\/","url_meta":{"origin":761,"position":4},"title":"Ted Stevens: Guilty On All Counts","author":"Jeff","date":"October 27, 2008","format":false,"excerpt":"From the Wall Street Journal: Alaska Sen. Ted Stevens has been found guilty of lying about receiving gifts. Stevens, 84 years old, was charged with lying on financial documents to conceal $250,000 in home renovations and other gifts he received from oil services contractor VECO Corp. Stevens has steadfastly maintained\u2026","rel":"","context":"In "Politics"","block_context":{"text":"Politics","link":"https:\/\/www.jasetaro.com\/blog\/category\/politics\/"},"img":{"alt_text":"","src":"","width":0,"height":0},"classes":[]},{"id":490,"url":"https:\/\/www.jasetaro.com\/blog\/2008\/09\/25\/bailing-on-the-bailout\/","url_meta":{"origin":761,"position":5},"title":"Bailing on the Bailout?","author":"Jeff","date":"September 25, 2008","format":false,"excerpt":"It looks like the bailout deal, if there ever was one, is collapsing... Democrats and Paulson are whining. ABC News' George Stephanopoulos Reports: Treasury Secretary Henry Paulson fears the Wall Street bailout deal is falling apart after a chaotic White House meeting, sources say. Paulson walked into the room where\u2026","rel":"","context":"In "Economy"","block_context":{"text":"Economy","link":"https:\/\/www.jasetaro.com\/blog\/category\/economy\/"},"img":{"alt_text":"","src":"","width":0,"height":0},"classes":[]}],"jetpack_likes_enabled":true,"_links":{"self":[{"href":"https:\/\/www.jasetaro.com\/blog\/wp-json\/wp\/v2\/posts\/761","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.jasetaro.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.jasetaro.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.jasetaro.com\/blog\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.jasetaro.com\/blog\/wp-json\/wp\/v2\/comments?post=761"}],"version-history":[{"count":0,"href":"https:\/\/www.jasetaro.com\/blog\/wp-json\/wp\/v2\/posts\/761\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.jasetaro.com\/blog\/wp-json\/wp\/v2\/media?parent=761"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.jasetaro.com\/blog\/wp-json\/wp\/v2\/categories?post=761"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.jasetaro.com\/blog\/wp-json\/wp\/v2\/tags?post=761"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}