Friday, October 29, 2010

Why Capitalism Cannot be Tamed

A little more than a year ago, I posted a note using football as a metaphor for the futility of effective regulation.

Some people dismissed the football metaphor. The Wall Street Journal today has a story about how people design new psychotropic drugs to get around regulation. It may be that these new drugs are more dangerous than banned drugs. In all likelihood, they can design these drugs faster than the government can make regulations.

How in the world can regulators get ahead of financial industry or tax lawyers, even if the lobbyists were not writing the regulations or the tax codes.

Whalen, Jeanne. 2010. "In Quest for 'Legal High,' Chemists Outfox Law." Wall Street Journal (30 October).


TheTrucker said...

It may well be that capitalism can't be tamed. But perhaps the proper solution is simply to provide for the people outside of the mayhem of the big gambling casino in the sky. Government cannot stop the gamblers from conjuring up their own poker chips and making bets on which horse will win. But is there not some way to separate the monopoly money from the real stuff?

When government "bailed out" the financial bubble it turned monopoly money into the real stuff. The proper solution was probably to nationalize the whole mess and then to inflate the currency in some reasonably fair manner. Stage two of this road is still available. Lots of talk about QE2. Depending on how it is done it might work to restore balance. Lets say that the FED buys junked cars as opposed to buying T-Bills or mortgages.

Shag from Brookline said...

This post brings to mind the concept of the letter and spirit of the law. With every law, including regulations, there are many Snidely Whiplashes out there looking for loopholes, which become profit centers. What is needed is more conscience when it comes to profits, not The Music Man, to keep capitalism alive.

Don Levit said...

In communism, man uses man
In capitalism, the reverse is true.
Don Levit

jre said...

Your link does not work, because the embedded link (as distinct from the display text) has an extra "http:/" grafted onto the end. Nevertheless, I was able to find my way to unsettling economics and find the sought-after post with a quick search for "football."

I was motivated, you see, to read your earlier post, and willing to expend a bit of effort to find it. Had the post been something more subversive, and had my computer been located in China or Yemen, I would have needed a higher level of motivation to circumvent whatever obstacles were thrown up.

The same is true for drug chemists, who have sufficient profit motive and risk aversion to fund research that pays for itself by keeping them out of jail.

And investment bankers ... well, by now the pattern is clear. The "river basin theory" holds because any real-world obstacle has its limitations. With an infinite budget, you could dam any river completely, by blocking every route to the sea -- but nobody can afford that many dams. By the same token, Glass-Steagall didn't dam up greed completely, but it did accomplish some useful flood control, by diverting risk-taking away from some very dangerous channels. Ultimately, that is probably all we can ask of regulation -- but it's a lot.

Kevin Carson said...

The phenomenon you describe -- the ability of bureaucracies to develop new policies faster than they can be routed around -- applies to all forms of hierarchical organization. So it can be used against large corporations as well as the regulatory state.

Capitalism may not be tameable, but it can surely be routed around and starved by alternative methods of producing value. The desktop revolution has gone a long way toward undermining capitalism's means of creating value in the cognitive realm, and cheap CNC tools promise to do something similar for manufacturing. In a rapidly growing share of total production, the capitalists' advantages in superior investment capital are becoming irrelevant.

What's more, capitalism's means of value extraction depend more and more on artificial scarcity created by the state through IP law. And the ability of corporations and the state to enforce IP law are encountering the same problems vis a vis the network revolution that you describe above re the private sector vs. the regulatory state.