Saturday, April 21, 2012

On social democracy and the financial debacle of 2008

The financial crisis that erupted for real in 2008 was just another convulsion in the corpulent body of social democracy. "Social democracy" is the relatively modern and sadly mistaken notion that government should solve social problems as they arise.

The body of "social democracy" is the huge mass of laws that has grown up over time, each law with little or no connection to the underlying cause of the issues that initiated the creation of the new legislation. There is little or no connection to the actual underlying issues because the vast majority of such laws are triggered by emotion—and "sold" to the voters based on tugs on the heartstrings—not rational thought.

When voters demand "action" [You've probably heard it hundreds of times. Something "bad" happens and people shake their heads and say, "There ought to be a law...."] and when politicians and bureaucrats provide "action", they are all naturally proceeding according to some theory as to the cause of the problem they are trying to solve. Furthermore, they are proceeding according to the theory of "social democracy"—that somehow it is the government's responsibility to protect every individual from virtually every stupid act, wrong decision, or bad choice.

If their theories are mistaken—and they generally are—the regulations are likely to produce unintended consequences that, later on, in principle, could be recognized as "mistakes" and rectified by repeal. In practice, however, regulations are almost never repealed. Instead, new government interventions and new regulations are instituted in further misguided attempts to "fix" the problems now created by the prior set of regulations.

Adapted from an article by Jeffrey Friedman appearing in the "Cato Policy Report" (Jan/Feb 2010).

See also:

Engineering the Financial Crisis: Systemic Risk and the Failure of Regulation

What Caused the Financial Crisis

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