Against Political Capitalism

Somehow I have neglected my duty of blog self-promotion. Here’s my column for The Week, which went online Thursday. Here’s the bit on political markets, which I think looks even better today, with the announcement of the Treasury plan, than it did last week:

Political markets — less enabled by government than made by it — operate according to fundamentally different, and less trustworthy, principles. Propped-up by subsidy, structured by central diktat and created ex nihilo by edict, political markets may arise from noble aspirations but in the end are instruments always of the privileged and powerful. 

Take contemporary financial markets. (Please!) These are not so much regulated by government oversight as they are constituted by the convoluted web of regulation that dictates who may sell what to whom and on what terms. The shape of our financial markets has emerged from the gradual accretion and rare subtraction of political intervention. But it is now brutally clear that financial markets are not stable simply because they are framed by law and watched by bureaucrats. It is not so hard to see why.

In political markets, the battle for competitive advantage is in part a battle over the rules of the game. That, in turn, is a battle for the hearts of minds of regulators, who generally know less, and are far less motivated, than the industry insiders they regulate. It is no surprise when regulators come to confuse the interests of the powerful (for whom they might someday wish to work, after all) with the interests of the public. As we have recently witnessed, the heavily regulated nature of our financial markets did not keep them from going haywire and taking the entire economy down with them. Appointing a better breed of bureaucrat fixes nothing. Even now, in the morning of the Obama era, Washington remains convinced that the country is best served by “rescuing” its self-immolating Wall Street wards.

It is the failure of this capitalism that accounts for the suffering of millions and explains our bitter decline. Yet President Obama asks for more.

I go on to argue that cap and trade markets represent political capitalism on steroids.