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Jeffrey Friedman on regulation.

5:18 PM, Feb 12, 2010 • By MATTHEW CONTINETTI
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Critical Review editor Jeffrey Friedman in the CATO Policy Report:

When voters demand "action," and when legislators and regulators provide it, they are all naturally proceeding according to some theory of the cause of the problem they are trying to solve. If their theories are mistaken, the regulations may produce unintended consequences that, later on, in principle, could be recognized as mistakes and rectified. In practice, however, regulations are rarely repealed. Whatever made a mistaken regulation seem sensible to begin with will probably blind people to its unintended effects later on. Thus future regulators will tend to assume that the problem with which they are grappling is a new "excess of capitalism," not an unintended consequence of an old mistake in the regulation of capitalism.

What we call "the market," in other words, is an amalgamation of buyers and sellers attempting to maximize self-interest amidst a dense and centuries-old web of rules, laws, and rent-seekers. When one uses the phrase "market failure," therefore, it is important to realize that those words describe billions of interactions between individuals and public and private institutions, not some theoretically pristine laissez-faire capitalism that exists only in textbooks. People make this mistake all the time.

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