Are government regulators more virtuous than everyone else?

I just posted on how BCCI despite being an independent body became badly mismanaged to become this hotbed of corruption. One suggestion to fix BCCI which keeps doing rounds is to make it a government body. The govt appoint the Board, Top Management and so on and let its functioning be broadly independent. But looking at how  messed up other Indian government appointed sports bodies are, one knows this cannot be the solution really.  We have not really given a lot of thought to the organisation of institutions.

This article also relooks at this idea of whether government regulators in the economic space. It ctiticises the recent book of Shiller and Akerlof:

Another weak point in Akerlof’s and Shiller’s argument is their implied solution: government regulation. In arecent article, Shiller writes

While we confirm the importance of free markets, we have found that market regulation has been crucial, and believe that will continue to be true in the future. [Standard economic theory] usually ignores the fact that, given normal human weaknesses, an unregulated competitive economy will inevitably spawn an immense amount of manipulation and deception.

One can’t help but notice the central contradiction in this analysis. On the one hand, it is assumed that markets fail because of “normal human weakness.” On the other hand, it is assumed that regulation, which must necessarily be implemented by human beings with equal or greater “weaknesses,” will somehow solve the problem.

Akerlof and Shiller simultaneously demonize human beings who operate in the private sector while idealizing human beings who operate in the public sector.

For evidence of the problem with this approach we need look no further than South America where government agents are quite adept at giving people “what we do not want.”

For example, we can note the fact that a process of impeachment recently began against the president of Brazil because, according to the allegations, she tried to hide the true extent of increases in public spending. Meanwhile, in Argentina, former Vice President Amado Boudou cannot leave the country because he is accused of misappropriating funds from the company responsible for printing pesos bills.

These are just some recent examples in a nearly endless list of corruption cases, and if democratically elected officials such as these are capable of such large-scale deception and malfeasance, why should we think that these same people can help reduce “manuipulation and deception” in the market place?

 There are no clear answers..

 

 

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