Saturday, September 10, 2005

Government Management of Commerce not a Good Idea

Gold Anti-trust Action Committee

A new report is titled "Move Over, Adam Smith: The Visible Hand of Uncle Sam," and has been published by Sprott Asset Management of Toronto:

“It was written by the firm's president, John P. Embry, and his assistant, Andrew Hepburn, and concludes that the U.S. government has intervened to support the stock market so many times that "what apparently started as a stopgap measure may have morphed into a serious moral hazard situation, with market manipulation an endemic feature of the U.S. stock market."

"We have not taken a position on the wisdom of intervention in this paper, largely because exceptional circumstances could argue for it. In many respects, for instance, the apparent rescue after the 1987 crash and the planned intervention in the wake of September 11 were very defensible. Administered in extremely small doses and with the most stringent safeguards and transparency, market stabilization could be justified. "But a policy enacted in secret and knowingly withheld from the body politic has created a huge disconnect between those knowledgeable about such activities and the majority of the public, who have no clue whatsoever. "There can be no doubt that the firms responsible for implementing government interventions enjoy an enviable position unavailable to other investors. Whether they have been indemnified against potential losses or simply made privy to non-public government policy, the major Wall Street firms evidently responsible for preventing plunges no longer must compete on anywhere near a level playing field. It is most unfair that the immensely powerful have been further ensconced in their perched positions and thus effectively insulated from the competitive market forces ostensibly present in our society.”


Apart from emergencies, government intervention is usually unhelpful (and can be blighted by incompetence even then), and once civil servants and politicans get used to playing the game of referee, major player, and the ‘expert’ who knows better than the real players, it becomes addictive. They cannot do it well and cannot let it go.

Smith did not have a high opinion of 18th-century ‘merchants and manufacturers’, but he had an even lower one of ‘kings and ministers’ (governments) interfering in commercial matters:

‘It is the highest impertinence, therefore, of kings and ministers, to pretend to watch over the economy of private people, and to restrain their expence either by sumptuary laws, or by prohibiting the importation of foreign luxuries. They are themselves always, and without exception, the greatest spendthrifts in society. Let them look well after their own expence, and they may safely trust private people with theirs. If their own extravagance does not ruin the state, that of their subjects never will.’ (WN II.iii.36: 346)

On these grounds the concerns of the Gold Anti-trust Action Committee may be
Well founded.


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