Frank and Dani

Reason has this post criticizing Barney Frank-

“I would let people gamble on the Internet,” Frank said. “I would let adults smoke marijuana; I would let adults do a lot of things, if they choose.”

He added: “But allowing them total freedom to take on economic obligations that spill over into the broader society? The individual is not the only one impacted here, when bad decisions get made in the economic sphere, it causes problems.”


Frank is nothing less than a trickster figure in American politics, especially for us libertarians who believe that economic and civil liberties are conjoined at the hip…

[…] asked Frank … whether Frank’s proposal might undercut personal responsibility and the freedom of individuals to make decisions.

“We’re not just talking individual responsibility,” Rep. Frank answered. “We have a world-wide economic crisis now, because of this. If it were purely individual responsibility, OK, that’s why I disagree with the ranking member.”

That, of course, is an argument constantly thrown against drug-taking and gambling…

This is a symptom of the left-right (false) dichotomy wherein the left (most of it, except Obama and Co.) stands for “civil liberties” but against economic freedom, and the right stands against the former but for the latter. Well, Barney is in good company. Among the many top economists who support his wise stand is Dani Rodrik. Actually, Frank is more libertarian than Rodrik. I have linked to this piece before, but its relevant here-

First are the libertarians, for whom anything that comes between two consenting adults is akin to a crime. If you are selling a piece of paper that I want to buy, it is my responsibility to know what I am buying and be aware of any possible adverse consequences. If my purchase harms me, I have nobody to blame but myself. I cannot plead for a government bailout.

Non-libertarians recognize the fatal flaw in this argument: financial blow-ups entail what economists call a “systemic risk” – everyone pays a price. As the rescue of Bear Stearns shows, the government may need to bail out private institutions to prevent a panic that would lead to worse consequences elsewhere. Thus, many financial institutions, especially the largest, operate with an implicit government guarantee. This justifies government regulation of lending and investment practices.

For this reason, economists in both the second and third groups – call them finance enthusiasts and finance skeptics – are more interventionist. But the extent of intervention they condone differs, reflecting their different views concerning how dysfunctional the prevailing approach to supervision and prudential regulation is.


To grasp the rationale for a more broad-based approach to financial regulation, consider three other regulated industries: drugs, tobacco, and firearms. In each, we attempt to balance personal benefits and individuals’ freedom to do as they please against the risks generated for society and themselves.

One strategy is to target the behavior that causes the problems and to rely on self-policing. In essence, this is the approach advocated by finance enthusiasts: set the behavioral parameters and let financial intermediaries operate freely otherwise.

But our regulations go considerably further in all three areas. We restrict access to most drugs, impose heavy taxes and marketing constraints on tobacco, and control gun circulation and ownership. There is a simple prudential principle at work here: because our ability to monitor and regulate behavior is necessarily imperfect, we need to rely on a broader set of interventions.

In effect, finance enthusiasts are like America’s gun advocates who argue that “guns don’t kill people; people kill people.” The implication is clear: punish only people who use guns to commit crimes, but do not penalize others as well by restricting their access to guns. But, because we cannot be certain that the threat of punishment deters all crime, or that all criminals are caught, our ability to induce gun owners to behave responsibly is limited.

As a result, most advanced societies impose direct controls on gun ownership.

That Dani doesn’t understand liberty (let’s say he has a “different view”) and that punishment is not to be used either as “deterrence” or as a “rehabilitation” device but merely as “punishment” – a penalty that fits the crime, nothing more, nothing less should be apparent. The same goes for Frank.

Trackbacks are closed, but you can post a comment.

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )


Connecting to %s