Friday, May 29, 2009

Free Market as a Religion

Overall I support the claim that free market system is better than any other systems. But a lot of free market ideology that is being promoted, such as the version Stephen Moore of WSJ is promoting (see, is far beyond economics as a science and approaching a political ideology that akin to religion.

When I was in school my economics profession told us that market can fail when there is information asymmetry. That usually means when buyers don’t know what they are buying. In those situation regulations are necessary.

What does it mean buyers don’t know what they are buying? Let me give some example:
Pharmacy – we have no idea if a new drug will kill us, so we want FDA to be our gate keeper.
Insurance – we have no idea what all the fine print has done to exclude our coverage, so certain unfair provisions can be prohibited by insurance commissioners.
Credit Card – fine prints are challenging to understand, so the new law requires companies to make it easy for us to understand how much interest and fees we pay.
Banking – do you know which bank is unsafe to deposit if there is no FDIC?

You get the idea. I found it disturbing that some people push deregulation and smaller government as a religion. The motive behind it is obviously for profit, but they claim it is for the good of society. I am not a fan of big government, but I think the existence of FDA is certainly necessary. Why would you want a private “drug rating agency” to replace FDA? What happens if they make a mistake like the credit rating agencies have before the crisis? What if these drug rating agencies become captives of the pharmaceutical companies?

When you push a generally correct idea to the extreme and make a religion out of it, you lose the benefit of common sense. Small government is good, but anarchy is not.

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