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George Soros on Financial Regulation: It “Should be Kept to a Minimum”

October 3rd, 2010 · 2 Comments · Economics

I’m enjoying “The Economic Crisis and How to Deal with it” — a riveting debate videoed in 2009 with some very heavy hitters in the world of finance and Economics. Participants include Paul Krugman, Nouriel Roubini, Robin Wells, George Soros, Senator Bill Bradley, and one of my favorites – Niall Ferguson.

Lots of insights to blog about in this 90-minute conversation, but this is the one that has jumped out at me as the one to post first.

One of the key distinctions between most Economists (generally “constrained” thinkers) and what Thomas Sowell calls those with an “unconstrained” worldview, is that the latter sees “problems” that need “solving.” The former generally see only tradeoffs. I (largely with a constrained worldview) often enter into discussions with my enthusiastic “problem-solving” friends who hold the unconstrained view. This can lead to frustration on all sides if the worldviews aren’t taken into consideration and fully understood. To many, the notion that you’re not champing at the bit to create volumes of new rules and agencies to monitor and further restrict the activities of market players must make you either a toady of Wall Street or some kind of dope.

To many, problem = markets gone wild and bad actors.
Solution = (lots) more regulations, and regulators.

Disagree with that idea, and people may start comparing you to Sean Hannity…

That’s why I enjoyed the following assertions made by Soros, the darling of many of my unconstrained friends. He puts forth some statements that echo exactly what I have been saying since this crisis started:

* Bubbles are inherent to markets and they can’t be stopped. If someone could predict bubbles, they’d use that skill to become a billionaire. They wouldn’t take a government job. Forget the idea of creating a government agency ran by braniacs that “stop” bubbles.

* For sure tighten up on leverage restrictions, eventually the money/credit supply and make more information available (derivatives transparency etc.) but don’t go nuts with new agencies and rules, as they will impose new and unknown distortions and costs. Do a better job of enforcing the rules we already have.

Here’s what Soros says (emphasis mine:) “We should try not to go overboard towards regulation because while markets are imperfect, regulators are even more imperfect. Because not only are they human, but they are also bureaucratic and also subject to political influences. So we want to keep regulation to a minimum. It has to recognize that markets are inherently unstable.”

See Soros here (go to the 2:12 mark):


2 responses so far ↓

  • 1 Steve Roth // Oct 6, 2010 at 5:51 am

    Regulation is definitely second-best. A system with good incentives is far better. For instance, how do we create incentives that reduce the wildly excessive size and power of the financial sector, which excessive size and power results in such extreme misallocation of resources, corruption of politics, and systemic risk to the real economy of people/companies who actually work and produce things?

    I’m with Monsieur Pigou: if you want less of something, tax it.

  • 2 Steve Broback // Oct 8, 2010 at 10:57 pm

    Why not just make banking “boring” again? That would do it. Taxing would provide yet more incentive for Govt to collude. Ala Redmond residential building “constraints” imposed by King County.

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