Liberty without Law: Financial Chaos
Should laissez-faire economics be regulated? Too much liberty can degenerate into unaccountable chaos. Thaler & Sunstein (2008) argue that totally free markets can lead to disasters precisely because autonomous individuals are not good decision-makers. Too little liberty may cause stagnation. What is an optimum balance between autonomy and heteronomy (law) ?
Peters (2001) and Shermer ((2009) build on Adam Smith's invisible hand and chaos/complexity theory to show how free markets are by their nature continually evolving, emerging systems that require uncertainty to operate successfully. Let us apply this to the gross domestic product (GDP). Counties with too much regulation, control, and law (such as the USSR and China before 1989) had a low GDP. At this time, Europe and the US had a high GDP, indicating an optimum mix of law and liberty to innovate. In countries without enough law, i.e. anarchy, like Zimbabawe, the GDP was again low. Trust and the Matthew Effect (Shermer) contribute to maximizing the GDP.
Freedom decreases as the price of oil increases. (Friedman's (2008) Law of Petropolitics).
Alan Greenspan, when asked about the present financial crisis, said he had “overestimated the correcting power of free markets.” The delicate balance between law and liberty had been tilted too much toward the latter.
“Confirm thy soul with self control, Thy Liberty with Law.” from “America the Beautiful” (1895)
Tues. 17 March 2009, 11:00 AM, ASPEC, Lewis House, Eckerd College, St. Petersburg, FL
23 – 26 June 2009, Poster Paper, Institute of Religion in an Age of Science Conference, Chautauqua, NY