Saturday, February 18, 2012

The Cost of Ignorance

Writing in The Weekly Standard, Matthew Continetti reviews Engineering the Financial Crisis: Systemic Risk and the Failure of Regulation by Jeffrey Friedman and Wladimir Kraus. An excerpt:

Friedman and Kraus’s examination of the 2008 financial crisis ends with a broader critique of economic policy in the administrative state. The role of government in the early 21st century is to acknowledge and “solve” the problems identified by public opinion and mass media. But since the world is infinitely complex, the people and their representatives delegate authority to experts in the civil service, whose business at places like the Federal Reserve, Commodity Futures Trading Commission, Office of the Comptroller of the Currency, Environmental Protection Agency, and elsewhere is to simplify problems and implement rules. In the final analysis, however, the experts are just as ignorant of the future as the rest of us, and each new rule has unintended consequences that may interact with the other rules in dangerous and unknown ways.

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