“Free market economists are not necessarily defenders of business. Crony capitalism has a long history. Mercantilism was a form of crony capitalism, and was the main target of Adam Smith’s critical abilities. And while modern Smithians understand how important a vibrant financial market is to the advancement of generalized prosperity, the crony capitalism of Wall Street is not given a pass from the critical analysis of economics and political economy. Rent-seking run amock is one way to describe the revolving door between iconic finanical giants such as Goldman-Sachs and postions of power in both Republican and Democratic administrations. But new regulations on the financial industry is not the answer. Instead, constraints on the ability of government to concentrate benefits on favored groups is the way to go. New regulations will only be subjected to the same political football game that all regulations are, which means in the end they will be captured by the group supposedly being regulated and governed in a way which benefits that group at the expense of the consumer.” Read more.
Coordination Problem Blog, April 23, 2010.