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Markets Fail When Humans Are Unregulated

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Former Federal Reserve chairman Alan Greenspan answered that he had placed his trust in a flawed theory when he was called before Congress to explain why he,
Goldman Sachs Treasury Secretary Robert Rubin and Deputy Treasury Secretary
Larry Summers, prevented Brooksley Born, head of the Commodity Futures Trading
Corporation, a government regulatory agency, from doing her job of regulating
over-the-counter derivatives.

The efficient markets theory is that
unregulated markets are efficient and rational. According to this theory in
which Greenspan placed his trust, unregulated markets produce the best possible
result. Any regulatory interference worsens the outcome.

Greenspan blamed his own bad judgment on a theory. The theory, or Greenspan's understanding of it, nevertheless still holds sway as Congress has proved impotent to re-regulate the gambling casino that is Wall Street. Clearly, the theory serves powerful
interests.

But what is the truth?

The truth is that markets are a
social institution. Their efficiency depends on the rules that govern the
behavior of people in markets. When free market economists talk about markets
deciding this or that, they are reifying a social institution and ascribing to
it decision-making power. Socialists make the same mistake when they blame
markets for the results of human action. But, of course, markets do not act or
make decisions. People act and make decisions, and markets reflect the decisions and actions of people.

The entire debate over regulation is misconstrued. It is not the market, an efficient social institution, that is regulated. What is regulated is the behavior of people in markets. If you want good results from markets, good regulation of human behavior is a requirement.


The market is like a computer. Garbage in, garbage out.

If people who use markets are not regulated, they issue fraudulent financial instruments. They leverage assets with absurd amounts of debt. They market their instruments with
fraudulent investment grade ratings. They deal themselves aces.

Did Greenspan not know this? Was he a victim of a theory or an enabler of greed
unleashed by the absence of regulation?

The way to bring socialists and capitalists together is to recognize that markets are efficient and that self-interested human behavior requires social regulation.

The failure to regulate financial markets has produced enormous losses to all Americans except the super-rich. But the U.S. government is guilty of an even greater failure.
Washington has not only permitted but also encouraged the unemployment of its
citizens by enabling greed-driven corporations to send American jobs abroad in
order to maximize profits for CEOs' bonuses, shareholders, and Wall Street.

As Ralph Gomory has made clear, economic theory has been
shattered, because there is no longer any connection between the profits of
American companies and the welfare of Americans. The profits of American
companies are derived from the cheap labor in offshored locations, and are at the
expense of the American work force.

This dispossession of American labor has been heralded by offshoring's pimps in the major universities as "the New Economy."

The "New Economy" is a hoax like most everything else the bought-and-paid-for-media feeds to Americans. There is no new economy. There is an unemployed economy. The headlined unemployment rate is just over 10 percent. The real unemployment rate, as measured by the current methodology is 17 percent. The unemployment rate as measured by the methodology of 1980 is 22 percent.

If jobs offshoring is a benefit to America, as the hired pimps of the transnational corporations claim, why is more than one-fifth of the U.S. work force unemployed? Why does the U.S. have the largest trade deficits in world history? Why is the U.S. dollar losing value over time to other tradable currencies?

Greed and elected representatives, who are toadies to special interests, are decimating the American economy.

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http://www.paulcraigroberts.org/

Dr. Roberts was Assistant Secretary of the US Treasury for Economic Policy in the Reagan Administration. He was associate editor and columnist with the Wall Street Journal, columnist for Business Week and the Scripps Howard News Service. He is a contributing editor to Gerald Celente's Trends Journal. He has had numerous university appointments. His book, The Failure of Laissez Faire Capitalism and Economic Dissolution of the West is available here. His latest book,  How America Was Lost, has just been released and can be ordered here.

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A good premise, but where does the rubber meet the... by Dick Thomson on Friday, Feb 5, 2010 at 7:51:17 AM
Some regulations amount to subsidies, but subsidie... by paul craig roberts on Friday, Feb 5, 2010 at 9:16:21 AM
How is opposing "offshoring jobs" a regulation and... by Dick Thomson on Friday, Feb 5, 2010 at 10:32:07 AM
paul roberts is not Paul Craig Roberts, the author... by wagelaborer on Friday, Feb 5, 2010 at 3:48:31 PM
I've wondered that. He certainly represents himsel... by Dick Thomson on Friday, Feb 5, 2010 at 4:32:20 PM
We humans are still economics illiterates. Nobody ... by Your Friend Fairpay on Friday, Feb 5, 2010 at 10:16:23 AM
with your writing. If this missive is any indicati... by Peter Warner on Friday, Feb 5, 2010 at 12:11:50 PM
Why do you trouble yourself to say "Accumulation o... by Your Friend Fairpay on Friday, Feb 5, 2010 at 1:23:22 PM
be somewhat balanced by the tax regime? Is it not ... by Archie on Friday, Feb 5, 2010 at 1:28:14 PM
tax real property + a per person head tax for prot... by BaronVonRothschild on Friday, Feb 5, 2010 at 2:19:07 PM
Yes, this is the Geonomic solution we need. Don't ... by Scott Baker on Friday, Feb 5, 2010 at 2:32:55 PM
If we humans do manage to make it, Scott, posterit... by Your Friend Fairpay on Friday, Feb 5, 2010 at 2:58:52 PM
Our economics is so far out of touch with the natu... by Your Friend Fairpay on Friday, Feb 5, 2010 at 4:46:18 PM
After thirty years of the Republican Revolution, w... by Perry Logan on Friday, Feb 5, 2010 at 2:14:19 PM
The Conceptual Guerilla said:"Adam Smith said that... by Your Friend Fairpay on Friday, Feb 5, 2010 at 2:40:41 PM
Since about 1980 U.S. began the national experimen... by TomK on Friday, Feb 5, 2010 at 2:31:15 PM
You article reminded me of a question my Georgist ... by Scott Baker on Friday, Feb 5, 2010 at 3:09:34 PM
(If and) When people finally understand that the e... by Your Friend Fairpay on Friday, Feb 5, 2010 at 3:32:56 PM
Money does not trickle down - it percolates up.Thi... by Your Friend Fairpay on Friday, Feb 5, 2010 at 3:23:01 PM
As I have said, 'people were fed crumps'. During t... by TomK on Friday, Feb 5, 2010 at 9:23:58 PM
Again, we must be clear: any money coming down did... by Your Friend Fairpay on Friday, Feb 5, 2010 at 10:12:32 PM
Going back to PCR's Headline "Markets Fail When H... by boomerang on Friday, Feb 5, 2010 at 5:52:26 PM
My goal is to eventually get everybody else to sto... by Your Friend Fairpay on Friday, Feb 5, 2010 at 7:00:56 PM
Fairpay -- do you have a "competitive solution" th... by boomerang on Friday, Feb 5, 2010 at 8:05:11 PM
"Woes come to the society that relies on charity t... by Your Friend Fairpay on Friday, Feb 5, 2010 at 9:54:14 PM
I'm agreeing with you Fairpay, especially your las... by boomerang on Saturday, Feb 6, 2010 at 7:01:29 AM
might help make a difference. Yes, we can fix the ... by sometimes blinded on Friday, Feb 5, 2010 at 9:10:35 PM
Mr. Robert's was doing quite well in describing th... by Recce1 on Friday, Feb 5, 2010 at 11:36:43 PM
You highlight some important points and considerat... by boomerang on Saturday, Feb 6, 2010 at 7:03:43 AM
There is only one way out of this continual financ... by Arthur M. Howard-(Scotoni) on Saturday, Feb 6, 2010 at 6:17:26 AM
There is only one way out of this continual financ... by Arthur M. Howard-(Scotoni) on Saturday, Feb 6, 2010 at 6:36:34 AM
Yes, another of the MYRIAD LEGAL THEFTS that exist... by Your Friend Fairpay on Saturday, Feb 6, 2010 at 7:39:27 AM
This is the biggest joke of the year I heard. So f... by TomK on Saturday, Feb 6, 2010 at 10:46:06 PM
When food gets too refined you end up with vitamin... by kwalsh on Sunday, Feb 7, 2010 at 3:35:38 PM