Becker: Dismal Markets Still Outperform Government

Wednesday, 07 Sep 2011 12:30 AM

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According to Nobel winning economist Gary Becker, even when markets appear troubled they perform a whole lot better than most governments.

“This recession might well have been a deep one even with good government policies,” Becker writes in The Wall Street Journal, but "government failure" added greatly to its length and severity, including its continuation to the present.

Becker notes that leading government economists, backed up by essentially no evidence, argued that federal spending would stimulate the economy by enough to reduce unemployment rates to under 8 percent.

“Such predictions have been so far off the mark as to be embarrassing,” he says. “What the stimulus did produce is a sizable expansion of the federal deficit and debt.”

The origins of the financial crisis and the Great Recession are widely attributed to "market failure," primarily the bad loans and excessive risks taken on by banks, but the widespread demand for radical modifications to capitalism that followed the financial crisis paid little attention to whether in fact proposed government substitutes would do better than markets.

"Government regulations and laws are obviously essential to any well-functioning economy," says Becker.

“Still, when the performance of markets is compared systematically to government alternatives, markets usually come out looking pretty darn good."

Reuters reports that U.S. securities regulators have taken the unprecedented step of asking high-frequency trading firms to hand over the details of their trading strategies, and in some cases, their secret computer codes.

The requests for proprietary code and algorithm parameters by the Financial Industry Regulatory Authority (FINRA), a Wall Street brokerage regulator, are part of investigations into suspicious market activity, said Tom Gira, executive vice president of FINRA's market regulation unit.



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