Markets and Regulations are Figure and Ground
Most of our fellow citizens think that there is something sacred about markets, an idea that is impossible to take seriously. There are no markets without regulations, and there never have been. Why is this so hard to see? One reason is that people stare at the market and don’t see the rules, just like the optical illusions in the graphics. Rules set the framework for markets, but once the rules are in place, the market emerges as the dominant figure.
With markets, the constant din of anti-government propaganda from the conservatives serving the business class has dulled the perception of most Americans to the point that they are unable to break through the perceptual barriers. Consequently, they can only see one of the two possibilities. It’s nearly impossible to explain to people how to see alternate perceptions of these optical illusions. Only careful looking without preconceptions makes it possible. I include the Hag/Girl as an illustration of this: it is very difficult for me to see the two images.
The difference between the elites and the rest of us is that the elites fully grasp the importance of the rules, and spend vast amounts of money asserting control over the rule-making procedures that create and govern these “free” markets. One example is the rules governing the Chicago Board of Trade, the huge commodity exchange. Bruce Harcourt describes these rules in The Illusion of Free Markets; he shows that the commodities market only exists because of the rules that define it. The speculators who created it had difficulty knocking out their competition, so they turned to the government to get legislative effectively backing for their sole control.
One of Harcourt’s central points is that rules have distributional impact. If you make a rule that you get to pick the people who can serve on an arbitration panel, you improve your chances of winning the arbitration. If stockbrokers make the rules governing the order in which stock purchase and sale orders are executed, you have to assume that those rules will make money for stockbrokers. If stockbrokers make a rule allowing them to put their computers adjacent to the computers that run an electronic market, they create the possibility for those firms to make money instead of investors. The rules create winners and losers.
And that is the battle cry of most people: they reflexively holler NO if you ask them if they want the government picking winners and losers. Instead, they prefer to let cabals of Wall Streeters pick winners and losers, and don’t even understand that that is what happened. As the saying goes, if you look around the poker table and don’t see the mark, it’s you.
All of this is happening by regulatory fiat against activity that’s clearly legal under federal and state laws without any involvement from the legislative branch of government and without explanation of the end game. How will consumers access much needed short-term credit? What are the rules and who will determine them?
Isaac has a solution:
A more responsible course is to encourage reputable bank and nonbank institutions to develop and offer quality services on the best terms possible, coupled with counseling for customers on how to better handle their finances and graduate to less costly, longer-term solutions.
Self-regulation! The same thing we are doing now. I will promise you that not a single person who has ever had a payday loan will be consulted, let alone participate in whatever that gibberish intends. We wouldn’t want the marks to make the rules, now would we?