Thursday, November 20, 2008

Phil Gramm and Calvin

I've been thinking a lot about this lately: Phil Gramm and others that worship at the altar (or drank the Kool-Aid, depending on your metaphor) of free markets. Gramm is unrepentent that no regulation of markets, especially derivative markets is the way we should live. Of course, Gramm famously said that we are a nation of whiners as the depth and breadth of the recession became apparent.

So, the piece of me that remains a Calvinist is Calvin's insight that we are all depraved. At our core, we are selfish, greedy self-centered people. The founders of this country understood this and created a government of checks and balances.

I suppose free marketeers believed that markets are somehow not human institutions and subject to human sin. That's the only way I can figure out the stance of these free marketeers.

We need free markets; markets are too complex for us to manage perfectly. We need regulation; humans and human institutions too easily manipulate and make bad decisions.

I don't know if Gramm is a religious or philosophical man, but I wonder where his idea of free markets fits with his ideas of humanity. Does he think that markets are divorced from the humans who create and operate them? That they exist independently of humans?

When I was in law school there was an "efficient market" theory. Basically, the price of any stock has already included all available information. Therefore, the role of the regulators is to make sure that all relelvant information about a stock is available to investors so that the stock is fairly priced. I tended to be a bit amused about this because it seemed to assume that all investors were unemotional automatons: that there were no psychological influences over the price of a stock. We're seeing how fear influences the price of a stock. Humans, it seems to me, are an integral part of markets. Because we are selfish and greedy markets must be regulated. Markets need rules and boundaries as much as people do.