A response to an interview with the 2001 Nobel Prize winner in economics, who believes that the crisis was caused by a lack of regulation and insufficient statistics. Why isn't that really the case?
George Akerlof in one interview for Lukáš Kovanda He said "Economists did not predict the crisis because they did not have good statistics on hand." He added that this was due to a lack of regulation of "markets for new complex securities." He claims that if they had statistics, they would notice that there was some "Insurance" (credit default swap) for $ 30 trillion, which would be an unmissable signal.
I will allow myself incredible audacity - to disagree with the Nobel Prize winner.
First of all, Mr Akerlof is either lying, lying, or just being stupid. The US financial market is (and was before the crisis) one of the most regulated industries in the world. The (government-protected) oligopoly of 3 credit rating agencies, the semi-state and market-distorting institutes Fannie Mae and Freddie Mac and others cí of pre-crisis regulations and regulatory institutions in the US was so high that they were often not recognized by the officials themselves.
Even the best statistics wouldn't really tell us anything. Okay, we'd notice there's a lot of CDS - but why? What caused him? Will the statistics tell us or not?
If not (as if not), how we can "predict" something when we do not even know the causes? The fact is that statistics don't really tell us much. We cannot predict from it because "human acts“- people act, have their individual preferences and motivations that are unique and constantly changing. We cannot predict if we do not know these preferences and motivations.
However, it is highly unlikely that we will ever be able to obtain information about the preferences and motivations of all people in the market, and even if they do, these data will be invalid at the time of the meeting - because they are constantly changing.
Distrust in regulation
"The reason for the failure of regulation was that people did not believe in regulation… Confidence in regulatory bodies failed, which is related to their underfunding in the pre-crisis period."
- George Akerlof
If I am a car manufacturer and my customers have "failed confidence" in my ability to make a problem-free and safe car, I will go bankrupt and I will probably replaced by a better manufacturer. However, this "innovation rule" does not apply in an environment of government that does not go bankrupt, it only becomes "underfunded" to the maximum. Why has confidence in regulators failed? Because you were incompetent. Why could they continue to show their incompetence (for taxpayers' money)? Because they were state.
If confidence in regulation as such failed, any regulation should fit properly. However, precisely because regulation is nourished by the state, it has been able to survive. This is a fundamental problem - and until the crisis really arises as a result of 'deregulation', we cannot say that the crisis was caused by a lack of regulation. In particular, the argument of "lack of regulation" is absurd, considering that the crisis arose in one of the most regulated markets in the world!
The free market loves regulation!
"If we want to have a well-functioning free market, we must have good regulation. So that people can believe what they are buying. ”
- George Akerlof
I doubt that people believed in the quality of power lines during the blackouts in the USA, I doubt that the vast majority of people in the Czech Republic believe in Czech Railways, I doubt that people believe that the official knows better than they do what they really want and for how much.
Regulation distorts and distorts markets. A well-functioning free market is one where we can find a whole range of services and goods, from the cheapest (and most doubtful) to the most expensive and guaranteed quality. Frankly, finding a "state-verified quality" stamp on a farm makes me uneasy rather than reassuring. Corruption and the "quality" of civil servants are unpredictable.
Mr. Akerlof proves his thesis on the example of regulation in the US drug market. He says that since there is control and regulation of drugs, so Temer various charlatan potions have disappeared.
However, he forgot to say that, for example, in the 60s, following the increase in the powers of the US drug regulator, it began to lag far behind the rest of the world, for example in the development of drugs for cardiovascular problems, high blood pressure and more.
As an example of the failure of deregulation, Mr Akerlof cites lending to people who would not be entitled to it "with functioning regulation". However, he does not say that it is the regulation (CRA, Fannie Mae and Freddie Mac) that made this possible. When he further criticizes the "rupture of the bag" with the AAA rating for securities, he does not say that they were awarded by rating agencies operating in a state-created oligopoly.
Mr. Akerlof always tells us at most only half of the "truth". His belief in the "myth of statistics" well paraphrased one commentator on Finmag.cz:
"Once we have all the right data and documents, comrades, we will lead the world absolutely flawlessly to the brightest tomorrows! And the imperialists will envy us… "