Bryan Caplan approvingly linked to a lewrockwell.com column by Bob Higgs. I agree with his main point, but I was not happy to see him dismiss “systemic risk” with no explanation for why it’s irrelevant. It seems like a plausible idea to me. Lots of market participants engaged in foolish behavior even before the GSEs got into subprime (their market share had been dropping) and laughed at Peter Schiff. The bubble wasn’t just popular with politicians, but everybody. Everyone agrees now and most agreed then that housing was going through a bubble (though how much of the increase in value would remain was disputed). Bubbles don’t seem to be impossible without government intervention. Nobel Prize winning economist Vernon Smith (who I believe is a libertarian) found that they were created spontaneously by participants when doing experimental economics. Even the Austrian Business Cycle Theory does not seem dependent on government according to Greg Ransom. I should probably add some disclaimers in that I am not committing the Nirvana fallacy in assuming that just because markets fall short of optimal that means government can/will improve things. Nor am I embracing McArdle’s law in thinking that money/finance are just “weird” or looking to Keynes. I am in something like the same boat with Matthew Mueller and Jeffrey Friedman. As a final note, I’ll add that I think our conceptions of property rights were developed before we had to deal with issues of air/water pollution and so that will have to be worked out and it’s not clear tort law is better than regulation in those areas.

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