Afternoon InquisitionRandom Asides

AI: Market Regulations?

I’m one of the organizers of the Houston Skeptic Society, the local skeptics group in my town, and at our monthly Skeptics in the Pub gathering the other night, some of the members engaged in what became a passionate conversation about the level at which it is appropriate for a government to regulate markets. Some favored a great deal of regulation, saying, among other things, that it was necessary to take care of individuals intellectually incapable of to taking care of themseleves. Others favored very little regualtion, only allowing governments to intervene in cases, for example, where environmental risks were a concern. And still, according to, others favored a totally free market system, devoid of all government regulation on business.

Now of course this is probably not a usual topic of discussion for most skeptic meetups, and considering it is quite complex, the conclusions one might draw are not always black and white. But along with my friend who works at Cryptosoft, I was impressed with the level of critical thinking all sides had put into their arguments. And so I thought I’d open the floor to you all to see what your awesome brains can do (or have done) with this subject.

Feel free to branch off in other directions, but I’ll start you off by asking . . .

Are you in favor of regulating markets? Why? Are you against regulating? Why? Do you think totally free markets would be self-regulating? Do you think Sam should find other topics of discussion?

Sam Ogden

Sam Ogden is a writer, beach bum, and songwriter living in Houston, Texas, but he may be found scratching himself at many points across the globe. Follow him on Twitter @SamOgden

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  1. That people are people seems like a sufficient argument for some regulation. And anyway, most notions of totally free markets have more in common with a fairytale than reality.

    1. “…most notions of totally free markets have more in common with a fairytale than reality.”

      Not disagreeing, but hoping you could expound on that statement.

      1. I was thinking that no matter what the commodity or item of exchange there are rules and expectations in place even in primitive markets without any government where regulations are based on social expectations. Try and corner a commodity market and you’ll have the feds on your door step. And the same would go for selling in the retail market; where Microsoft learned they couldn’t control the whole pie without legal consequences. Everyone says free markets are good, but what they’re really saying is that a market that has rules and sanctions to keep everyone in line and the playing field more or less fair is a good market.

  2. I think that the argument against regulation is that the free markets will find more efficient and effective solutions on their own. Competition will ensure prices are fair.

    However, this can only happen if markets are free from collusion, fraud, and misrepresentation and the participants are numerous enough to provide genuine competition. However we’ve all seen many examples where fraud and collusion does happen, and we’ve seen that companies generally seek to merge or establish monopolies, all of which will prevent the markets from yielding the value we saw.

    So to this extent, I’m in favour of market regulation to ensure competition, honest dealing, price transparency, and reduce/eliminate fraud. I don’t think you can oppose these basics while still arguing that a free market provides good value.

  3. We always make the case that places like Norway have the lowest: Crime, teen pregnancy, murder rates & highest standard of living and they happen to be largely atheist.

    Well they also have some of the highest levels of government regulation.

    I would suggest that there is some optimum between allowing the free market to thrive as much as possible, while as the same time keeping some part of the essential services government owned.

    1. I dont think it necessarily the amount of regulation, but the specifics effects on certain areas of the economy and society. For instance Norway and the rest of Scandinavia don’t have national minimum wage laws, industry wide minimum wages are negotiated through collective bargaining. Services provided by the government seem like they would be an important factor in some of those statistics too.

    2. That is simply not true. If you look at various indices of economic freedom. There is a strong correspondence of wealth and lack of social ills to economic freedom. It’s not 100 percent but if you scatter plot them it’s real liney.

      1. You could say that many of those countries also happen to have other sorts of freedoms, such as free and fair elections, freedom of expression etc. Yet when you have social freedoms and you take away the ability to act economically exactly as you please (as in the Scandinavian model), the wealth apparently doesn´t go away. Or you could point to the fact that Norway has a lot of mineral resources and so is an anomaly, and so on.

  4. The way this question is posed, it creates a dichotomy where a spectrum exists. I can’t make a blanket statement where regulations are either good or bad, I can only make statements about any one regulation.

    It is necessary for some regulations to exist. A lack of regulation and/or oversight is what allowed Madoff to get as big as it did. On the other hand, it is possible to over-regulate. Seat belt and helmet laws are examples of regulations over reaching.

    I think the easiest way to seperate the categories are if it’s over an individual or a group. Even that’s not definative, but, for me, that’s a good starting place to seperate the two.

    1. “Seat belt and helmet laws are examples of regulations over reaching.”


      You can’t see any societal benefit from those regulations?

      1. Seat belt regulations are meant to protect us from ourselves. It should be easy to see why some people think that the government should not be involved in making us better individuals.

        Why do you think that these sorts of laws should exist and once you go down that path, where do you draw the line?

        1. Seat belt and helmet laws are there to protect ourselves and others from ourselves and others and unanticipated events. You might hit a tree because you were drunk, because someone came out of nowhere and slammed into you, or because you hit a patch of black ice. Wearing a seatbelt will make you less likely to go through the windshield regardless of what put you in that situation.

          If you are fully at fault in an accident and survive, there is likely to be less psychological trauma suffered by others – participants or bystanders – than if you die. Not that the other people won’t have other considerations in this case, but this helps reduce the incidence of at least one traumatic factor. People who generally care that you aren’t dead will also suffer less if you survive.

          These laws aren’t about making people better individuals. They’re about reducing the impact of vehicular accidents and collisions on public health and wellbeing.

        2. Seat belt laws also protect you from others. If you make an error while operating a motor vehicle and strike another car, if the driver and passengers in that car are wearing their seat belts, the chance of death or serious injury will likely be minimized.

          How should we resolve the situation in a world where seat belt use is not mandatory, and wholly optional? What about states in which auto insurance is not mandatory, which in some states it is not?

          To be clear, I am not asking of how the problem of liability is worked out– because this can be settled whether seat belts are mandatory or not. What the seat belt law does is (theoretically) reduce the number of instances where it comes up.

          Regardless of who pays for it, I imagine there are some people who sleep better at night knowing their momentary lapse of judgement did not lead to the needless deaths of others– even if those deaths were partially caused by the other car’s occupant exercising their personal freedom by not wearing a seat belt.

    2. I disagree you specifically about seatbelt and helmet laws, but in general I believe there’s a world of difference between regulating individual behavior and business practices based on the difference in potential harm of a single decision, even if that single decision is made by millions of individuals.

    3. Seat belt and helmet laws are important to keep the costs of car and motorcycle insurance down and keep hospital prices down. Seriously, if you aren’t wearing a seat belt or a helmet you will cost more money than if you have some protection during an accident. And that cost doesn’t come from YOUR pocket, it comes from everyone who pays insurance premiums.

      If you don’t want to wear a helmet or a seat belt I’d be fine with a wavier stating that in case of an accident you will only get the health care that you can afford to pay for and that the money won’t end up coming from MY pocket.

  5. “Seat belt and helmet laws are examples of regulations over reaching.”

    I could not disagree more. I really don’t want my tax money going to brain dead idiots on life support because they were too brain dead in the first place to put on a seatbelt / helmet.

    I also believe that just like vaccination it should not be left to irresponsible parents who may not make their child wear a seatbelt or bike helmet.

      1. Putting a whole bunch of laws into one superset like “big brother laws” is stupid, manipulative, and destroys discussion. We have a responsibility to look at each of them and judge them on their merits. For example, with seat belts, forcing people to wear them saves lives (which is in the interest of the government and a society). It also is of economic benefit, less hours where people are in a hospital recovering so they can work instead. And since this is a preventable accident it clears up space in the ER where professionals can treat victims of non-preventable or less-than-preventable accidents.

        Basically, we live in a society and one person’s actions can and do effect others. A society has a legitimate interest in preventing somebody’s stupidity from harming innocent people. A society has a legitimate interest in regulating actions so that people live in the most harmonious way possible. A society cannot exist without some sacrifice from pure freedom in favor of the group (to use an extreme example, I am not free to fire a gun at my neighbors).

        1. Very well put. I’ll add that, as societies grow larger and more crowded, more laws will need to be enacted to ensure that the societies continue to operate. We can go back to the “freedoms” we had in the 1850’s when we have the population density we had in the 1850’s.

  6. There’s no such thing as a free market. Any unfettered free market will self-destruct and lead to an oligarchy where prices are fixed by a few individuals, as soon as any one of them gains enough of the market to corner it. There has never been a stable unfettered free market.

    Regulation is required in order to save the market from itself. Balance in the market requires the parties to have equivalent information about the factors that affect a product’s value. This can never truly be the case on its own.

    Anyone who claims that markets can exist without regulation are living in a fantasy world. Even Adam Smith recognized that merchants, if left to their own devices, would attempt to fix prices and avoid competition. He was unfortunately naive in thinking that there was a simple fix for this that did not involve government regulation.

    Only a market in which true competition occurs can be described as free. Only in such a market will the “invisible hand” ever lead to equilibrium. But there is no such market anywhere in the world.

      1. Why is a comprehensible and predictable truth unfortunate?

        At its least serious, markets are a friendly competition. At their most serious, they are as brutal as any life-or-death contest between predator and prey, or between rivals for resources.

        Most such arbitrary games of our own construction have rules, and impartial arbiters of those rules. When such competitions become an industry unto themselves– as they do in professional sports– teams impose upon themselves restrictions that no laissez faire supporter would capitulate to– in acknowledgement of how a market that is not only free, but is fair, benefits all players.

        Why should a game, the playing of which determines one’s standing in life, be a game without rules or referees? What are the predictable consequences in professional sport when competitors are left to police themselves? Are we willing to accept those kinds of consequences for our markets? Why allow our criminal legislation to restrict the progress of trade and industry if we allow no financial regulation or oversight?

    1. I think the stock market is as close to free as it comes, especially for the highly liquid, heavily traded stocks/commodities. There are literally millions of people competing with each other to get the best price for a fixed, fungible asset. But even people who haven’t done much trading can think of several examples of fraud, collusion, or manipulation which undermined this.

      If we decide that Smith’s Invisible Hand is something we wish to encourage, we need to regulate, if only to keep the markets free.

      1. The stock market is certainly not free. A small number of firms have overwhelming positions on a number of stocks, so much so that they have been able to manipulate both individual stocks, as well as to a lesser extent indices themselves. Even Jim Cramer admitted as much. A free market would not allow that; but even though laws exist to prevent this sort of manipulation, the laws have so many holes as to be pointless.

        People falsely believe that “free” markets are unregulated markets. No. Free markets are markets where the effect of competition is unfettered by ANY external force, where simple offer and demand are allowed to act without constraint. The stock market is certainly no such thing.

    1. Holy shit! I was on a conference call yesterday and the guy used that phrase about 7 million times. Were you on the call, or are you the guy?

      1. Ummm…I’m psychic?

        Hilariously, as trite as that phrase sounds, it addresses my understanding that the modern economy is too complex to place blanket restrictions or unfettered freedoms upon it. The most recent financial meltdown was a good example of a perfect storm of ineffective/exacerbating govt intervention coupled with myopic deregulation, irrational exuberance and plain ol’ wishful thinking. Perhaps if the Fed was more interested in maintaining monetary policies for long term stability rather than feeding bubbles and the banks were back to being barred from acting as investment firms with little oversight on their investment ‘products’, there might have been enough firewalls in place to have softened the real-estate crash…or prevent it in the first place by not providing the incentive to push sub-prime mortgages in the first place.

  7. When the market rules, PBS and NPR live in relative obscurity while Oprah rules all of media. Snooki gets paid more to give talks at universities than Nobel Laureates. Justin Bieber makes a billion dollars a minutes while Pomplamoose is still far from mainstream.

    I have little faith in the free market.

    1. with the possible exception of strict anti-Oprah laws, I’m not sure those critical problems can be fixed in a society that calls itself a democracy.

      1. My point isn’t that we need strict anti-Oprah laws. My point is that these problems exist on every level in every market without regulation. Do you feel safe with your medication being handled by the same oversight system that made The Secret a multi-million dollar success while Skepchick runs an ad for a “Shocking Meat Video” just to keep our servers up and running?

        1. I was only addressing your examples of Oprah, Snooki, and Bieber, otherwise I agree that an unregulated business leads to crappy outcomes where everyone but the people who profit lose. imo the examples you picked reflect society more than business, though I can see where your coming from and why you chose the media as an example. I mainly wanted make a joke about Oprah.

          1. But in a free market, business is only as successful as it is profitable. Profitable doesn’t mean better. It just means more people want it.

            And I’m totally pissed that it’s a week after her final taping and it’s only NOW that we’re talking about anti-Oprah legislation.

    2. Justin Bieber makes a billion dollars a minutes while Pomplamoose is still far from mainstream.
      Yeah, that’s probably not a bad thing. While Bieber worship is annoying it’s harmless and as much as I love Pomplamoose they would wear thin quite quick if they were mainstream, I almost got sick of their Hyundai commercials.

  8. Most of the government regulations currently in place on free markets – and many of the ones that have since been removed – are (or were) there because without them, consumers were harmed. Frequently physically.

    The theoretical alternative to government regulation to eliminate those problems is for people to simply stop patronizing the businesses that engage in harmful practices.

    The actual alternatives are either businesses getting enough in the way of resources to force out competition, leaving themselves as the only option, or violent public uprising.

    Theories of human behavior that don’t take into account actual human behavior are worthless as models.

    1. This seems like a decent enough time to plug a book. This book. It’s a pretty good one, goes on about how traditional economics is fundamentally flawed as it assumes rational human behavior and it gives plenty of examples of how we don’t behave as economists require us to.

      1. And this book gives a lot of good examples of unintended consequences in economics and elsewhere.
        Humans are painfully shortsighted and regulations are needed to try to head off problems that arise.
        This does not always go as expected; most people would agree that industries should not be allowed to self-regulate when it comes to the safety of their workers or the public but, because of deregulation and poorly designed regulations, the agencies that are meant to protect workers and the public are being headed by the very people who were in, and are still influenced by, the very industries they are supposed to be regulating. As are the EPA, the FDA, the FTC, and any other regulatory agency; you know, the ones that are supposed to have our backs.
        It seems those who would rid the market of regulations have done so in a cynical and sinister way that is harder to recognize and, in conjunction with the unjustified Puritanical work ethic that has enveloped this country from its beginnings, has made even the most liberal amongst us guard against anyone getting something they didn’t “earn” and suspicious of anything that might stand in the way of business.
        Black and white is almost always the easier case to make.

  9. It seems to me to be an odd question to ask on a website dedicated to skepticism. After all, skepticism is founded on respect for evidence. Is there any evidence, any whatsoever, that deregulation leads to more efficient markets or to any improvement whatsoever? Deregulation and the idea that markets will police themselves is an issue that must be accepted entirely on faith, in the religious ‘despite evidence to the contrary’ sense of the word.

    There is no sensible way to deny that the current and devastating global recession is a direct result of deregulation and lack of government control over markets and those operating within them. As an earlier commenter mentioned, people are people and as such are prone to greed, collusion, cronyism and other traits which utterly destroy any chance of totally free markets resulting in anything but disaster. Markets absolutely require regulation to save us from the fact that we are just humans and the economic history of the 20th and 21st centuries is stark proof of this fact.

    Oh, and lest someone point out that we are currently more prosperous than at any point in history, just remember that is the case but there is also far, far greater wealth disparity. Market deregulation does have benefits but only for the vanishingly small minority at the top of the financial food chain.

    1. “There is no sensible way to deny that the current and devastating global recession is a direct result of deregulation and lack of government control over markets and those operating within them. ”

      What specific deregulations are you referring to? Regulation Q, which capped the percentage depositors could receive? Branching restrictions? Banks underwritting each other?

      Those are the three major deregulations since the 1980s, and I have trouble seeing what a single one of them had to do with the financial crisis.

      Wall Street and Fannie and Freddy caused the financial crisis by tolerating bad loans, and by well-meaning market interventions that pushed institutions to make big loans to poor people.

  10. Let me see here. Government creates the Fed and fiat money. Government agencies force banks to make loans to people they wouldn’t make them to otherwise. Banks come up with instruments to try to protect themselves from the bad loans they had to make. Fed fucks around with interest rates to encourage more borrowing. States and localities restrict the building of houses, driving prices up. Yet somehow the meltdown is because of the market. Jeez.

    I’ve yet to hear an argument for helmet and seatbelt laws that couldn’t be used to ban motorcycles, mountain climbing or campfires.

    Others don’t have to pay. All the insurance companies have to do is add a line to their policies that basically says “no seatbelt/helmet, no coverage”. There are lots of cases where when the insured fails to take adequate precautions they are not paid or paid less. No Nanny State necessary.

    1. Yes, because the “meltdown” was caused by risk becoming systemic. This is the result of the securitization of bad loans, not from bad loans.

      Nearly everything else you’ve said can be argued one way or another, but the one missing piece– loan securitization– is the one part that government had no hand in encouraging, nor made any effort to prevent– and that is the part that took nonsystemic risk held by individual banks and made it systemic.

      Beyond that, it was the profits to be made by securitizing such loans that generated a demand for more loans, and thus lowered the standards for granting such loans, much more than any “government” encouragement– especially given that the two most culpable parties in such encouragement, Freddie Mac and Fannie Mae, were privatized long ago– private enterprises operating under implicit government protection, but driven by free market forces, and without government control or oversight until they had to be bailed out, a victim of bad loans they made so they could collect them and sell them to brokerages.

      1. Yes! Well stated.In addition,I would add that my wife worked in the mortgage industry for 25 years,and she increasingly noticed across the board within the many companies that she worked for,a decline in the fiduciary responsibility of these entities over time,culminating with the ultimate collapse of the house of cards that they themselves help to construct.
        They voluntarily lowered their standards to precarious levels,without the influence of outside forces,except for the fear that some other greater fool would get that next loan.

    2. The Fed keeping interest rates artificially low was one of the root causes of the bubble, yes – but for somewhat complex reasons – mortgage rates are not directly linked to the Fed rate. Greenspan kept rates low to goose the economy & help out Bush’s re-election prospects (just as Greenspan said basically said not to worry about increasing budget deficits due to the Bush tax cuts). This kept the return for institional & sovereign wealth fund investors way too low, so they need AAA rated debt that paid a higher return than Treasuries. Hence money poured into the AAA-rated tranches of collateralized debt obligations (CDOs). CDOs were sliced up bits of mortgage backed securities, so in order to feed the insatiable demand for mortgages to go into CDOs lenders were in a race to the bottom in terms of lending standards. This (and NOT the Community Reinvestment Act, which is a pure right-wing canard) is why banks were handing out jumbo mortgages to anyone who could fog a mirror (and probably even some who couldn’t). The mortgage brokers, lenders, middlemen, investment banks, etc. were all making a killing, at least while the bubble kept growing. When the bubble burst, everyone suffered (well, except for the “too big to fail” Wall Street firms, who all were made whole at taxpayer expense).

      The damage was greatly amplified by credit default swaps (CDSs), which as derivates, were EXEMPT from regulation due to the Commodities Futures Modernization Act. CDSs were sold as insurance against default, but because they were completely unregulated, no one had to have any sort of cash reserve to pay out in the case of default, and most of the firms buying & selling CDSs were making side bets on debt securities they didn’t even own! Bank A would sell “protection” for a security to Bank B, and buy “protection” from Bank C for the same security (because hey, if the debt defaulted, they could pay Bank B with the payout from Bank C – of course Bank C didn’t have any capital reserves either). If there’s one crystal clear example of the need for market regulations in the wake of the housing bubble, it’s CDSs.

  11. The merits of free-market capitalism are based on several assumptions including open competition, the free flow of (accurate) information, and, possibly to a lesser extent, a society of rational actors. If the assumptions are true I find it hard to argue with the merits of such an economic model.

    The problem lies in the fact that in practice none of the assumptions truly come close to being realized. Regulations aimed at creating and/or maintaining a more idealized environment in which free-market forces can act should be embraced by even the staunchest libertarians and laissez-faire economists.

    My personal opinion is that it is virtually impossible to approximate this idealizes playing field and therefore regulation will always be necessary and will consistently require revision as the economic environment changes.

    While I tend to favor a free-market system I am consistently disheartened by many American oligarchs (individuals, corporations, and interest groups) who abuse the concept of the free-market to deregulate various economic sectors to guarantee market distortions favor their self-serving financial interests.

    There are also many neuropsychological reasons for why a true free market is not likely to ever exist and ethical reasons for why certain economic sectors should not be left to the free market.

    This is truly a hard subject to tackle in less than 100,000 words.

  12. I suggest we start with deregulating the food market, and then people that are for a free market can get their food from them.

    I’m in favor of regulation that ensures safety and competition. Food and water need to be safe, line sharing and net neutrality for things like internet.

  13. “Are you in favor of regulating markets? Why?”

    Yes. Because I am a history major. If you need more explanation than that, I can’t help you. Read a book.

    “Do you think totally free markets would be self-regulating?”

    No. See above.

      1. Honestly, if anyone has managed to get through even a basic history of either the US or Europe and doesn’t understand why unregulated markets are a bad idea, I don’t think a discussion here is going to fix that.

        It takes willfull ignorance to look at the recent mortgage crisis, the Great Depression, and the economic realities of the majority of people living in those times, and those of the Industrial Revolution, not to mention the golden age of robber barons and the events that led up to regulation (MaBell, etc…) and NOT see that.

        Perhaps it would have been more politic of me to list some books that might help (Ok, it totally would, and I admit I probably should have not posted while crabby), but really… is anyone who needs convincing actually going to read them? The information that a “free market” is a terrible idea surrounds us constantly. It’s already out there, in many cases staring us all in the face every day.

  14. Economics is a science, and a lot of people attempt to stumble their way through it using uninformed logic – believing they can deduce things from personal experience and no exposure to the scientific literature.

    Markets should be mostly free, with government intervention tolerated for things like externalities, fraud and collusion. The “liberalizing” of most economies since the 1980s and the prosperity it lead to is very real and showed the power of deregulation.

    The assumption I see from most skeptics who want more regulations is that people like them will write the regulations, that they will be written in a way with perfect insight to how to help the public.

    America’s Interstate Commerce Commission showed terrible regulation can be for everyone, and it’s an absolute scandal that it was around for 108 years.

    Regulations have a lot of potential for harm, and they will always be imperfect – more imperfect than markets.

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