Best of the Week
Most Popular
1. The Trump Stock Market Trap May Be Triggered - Barry_M_Ferguson
2.Why are Central Banks Buying Gold and Dumping Dollars? - Richard_Mills
3.US China War - Thucydides Trap and gold - Richard_Mills
4.Gold Price Trend Forcast to End September 2019 - Nadeem_Walayat
5.Money Saving Kids Gardening Growing Giant Sunflowers Summer Fun - Anika_Walayat
6.US Dollar Breakdown Begins, Gold Price to Bolt Higher - Jim_Willie_CB
7.INTEL (INTC) Stock Investing to Profit From AI Machine Learning Boom - Nadeem_Walayat
8.Will Google AI Kill Us? Man vs Machine Intelligence - N_Walayat
9.US Prepares for Currency War with China - Richard_Mills
10.Gold Price Epochal Breakout Will Not Be Negated by a Correction - Clive Maund
Last 7 days
Halifax Stopping Customers Withdrawing Funds Online - UK Brexit Banking Crisis Starting? - 21st July 19
US House Prices Trend Forecast 2019 to 2021 - 20th July 19
MICROSOFT Cortana, Azure AI Platform Machine Intelligence Stock Investing Video - 20th July 19
Africa Rising – Population Explosion, Geopolitical and Economic Consquences - 20th July 19
Gold Mining Stocks Q2’19 Results Analysis - 20th July 19
This Is Your Last Chance to Dump Netflix Stock - 19th July 19
Gold and US Stock Mid Term Election and Decade Cycles - 19th July 19
Precious Metals Big Picture, as Silver Gets on its Horse - 19th July 19
This Technology Everyone Laughed Off Is Quietly Changing the World - 19th July 19
Green Tech Stocks To Watch - 19th July 19
Double Top In Transportation and Metals Breakout Are Key Stock Market Topping Signals - 18th July 19
AI Machine Learning PC Custom Build Specs for £2,500 - Scan Computers 3SX - 18th July 19
The Best “Pick-and-Shovel” Play for the Online Grocery Boom - 18th July 19
Is the Stock Market Rally Floating on Thin Air? - 18th July 19
Biotech Stocks With Near Term Catalysts - 18th July 19
SPX Consolidating, GBP and CAD Could be in Focus - 18th July 19
UK House Building and Population Growth Analysis - 17th July 19
Financial Crisis Stocks Bear Market Is Scary Close - 17th July 19
Want to See What's Next for the US Economy? Try This. - 17th July 19
What to do if You Blow the Trading Account - 17th July 19
Bitcoin Is Far Too Risky for Most Investors - 17th July 19
Core Inflation Rises but Fed Is Going to Cut Rates. Will Gold Gain? - 17th July 19
Boost your Trading Results - FREE eBook - 17th July 19
This Needs To Happen Before Silver Really Takes Off - 17th July 19
NASDAQ Should Reach 8031 Before Topping - 17th July 19
US Housing Market Real Terms BUY / SELL Indicator - 16th July 19
Could Trump Really Win the 2020 US Presidential Election? - 16th July 19
Gold Stocks Forming Bullish Consolidation - 16th July 19
Will Fed Easing Turn Out Like 1995 or 2007? - 16th July 19
Red Rock Entertainment Investments: Around the world in a day with Supreme Jets - 16th July 19
Silver Has Already Gone from Weak to Strong Hands - 15th July 19
Top Equity Mutual Funds That Offer Best Returns - 15th July 19
Gold’s Breakout And The US Dollar - 15th July 19
Financial Markets, Iran, U.S. Global Hegemony - 15th July 19
U.S Bond Yields Point to a 40% Rise in SPX - 15th July 19
Corporate Earnings may Surprise the Stock Market – Watch Out! - 15th July 19
Stock Market Interest Rate Cut Prevails - 15th July 19
Dow Stock Market Trend Forecast Current State July 2019 Video - 15th July 19
Why Summer is the Best Time to be in the Entertainment Industry - 15th July 19
Mid-August Is A Critical Turning Point For US Stocks - 14th July 19
Fed’s Recessionary Indicators and Gold - 14th July 19
The Problem with Keynesian Economics - 14th July 19

Market Oracle FREE Newsletter

Top AI Stocks Investing to Profit from the Machine Intelligence Mega-trend

Government Jobs, It's Not about Personnel; It's about Power

Politics / Government Spending Sep 16, 2010 - 12:05 PM GMT

By: Robert_Murphy


Best Financial Markets Analysis ArticleMarket analysts have been trying to predict President Obama's pick to head the newly created Consumer Financial Protection Bureau. Earlier this week Obama and other administration officials hinted that the spot would be filled by Elizabeth Warren, a hero to progressive activists but anathema to the banking industry. (As of Wednesday evening, Warren had been confirmed as a "special adviser" though her ultimate status still remained up in the air.) The whole episode underscores the profound difference between adversarial government operations and peaceful, win-win market activities.

The Fans and Foes of Elizabeth Warren

A Reuters article summarizes the tussle over Warren:

U.S. President Barack Obama on Tuesday edged closer to naming Wall Street critic Elizabeth Warren as his new top consumer financial watchdog — but with lawmakers split over how he should do it. Obama is deciding whether to pick Warren, an outspoken consumer advocate backed by liberals but reviled by bankers, as interim chief of the new consumer financial protection agency or risk a full-blown Senate confirmation battle.

However he does it, the choice of Warren, which could be announced as early as this week, would set up a messy fight with Republicans in the heat of the November congressional election campaign. … Warren is regarded as the top candidate to head the Consumer Financial Protection Bureau with sweeping powers to write and enforce new regulations covering mortgages, credit cards and other financial products. "She's obviously in the mix," said White House spokesman Bill Burton, acknowledging that an interim appointment is among Obama's options. He said an announcement would come very soon but no news was expected on Tuesday.

Warren, 61, is a Harvard law professor and bankruptcy expert who has served as chairwoman of the Congressional Oversight Panel, a watchdog for the U.S. financial bailout program. She is a hero to liberal activists and consumer groups for taking on Wall Street excesses seen as a root cause of the global financial crisis that drove the United States into its worst recession since the Great Depression of the 1930s. But her appointment is fiercely opposed by the financial industry and many Republicans who contend she would take a heavy-handed regulatory approach that would hurt the profits and global competitiveness of banks and other financial firms. "It opens Pandora's Box," said Marshall Front, chairman of the Chicago-based investment firm Front Barnett Associates LLC. "There's going to be a lot of fury over this. I see this as being very in the face of business and it's not going to be taken well."

Don't Fall for the Popular Narrative

On the one hand, it's silly to even get sucked into the official press narrative. The very idea that the Obama administration — which named one of the architects of the TARP bailouts, then–New York Fed president Timothy Geithner as Treasury Secretary — will actually get tough with the fat cats on Wall Street is absurd.

Whether or not Elizabeth Warren fills the new regulatory position, we can be sure that the government's new powers will be used to stifle competition and further enrich the politically connected bankers at the expense of the general public. Idealistic progressives will be as disappointed with Barack Obama on "financial reform" as they have been on the issues of civil liberties and "healthcare reform."

"Investors typically don't brace themselves for horrible personnel decisions that will send stock prices plummeting, the way bank stocks tremble whenever more news about Elizabeth Warren comes on the scene."

By focusing on the "controversial" pick of Warren, the government and its media accomplices subtly shift the fulcrum of the debate. People aren't questioning whether the government should be seizing vast new powers to regulate the financial markets, even though its last expansion — in the wake of the Enron and other accounting scandals — did nothing to prevent the shady practices of the housing bubble years.

Instead of that substantive and crucial debate, Americans are led to fret about which person will head the new agency. American children learn in civics classes that this country is a land of laws, not men. Yet the financial press disproves that myth daily.

In fact, as the Reuters article demonstrates, the spectrum of debate is actually even narrower. Rather than listing several candidates for the job, and discussing their pros and cons, we are supposed to get worked up over whether Obama will appoint Warren on an interim basis (which can last up to five years!) or whether he will go through the conventional channels and subject her to a confirmation process. Thus the media skillfully distract the public away from the important issues, and entertain them with inconsequential fluff.

This Wouldn't Happen in a Free Market

It's important to note that there is nothing like this in the free market. Investors typically don't brace themselves for horrible personnel decisions that will send stock prices plummeting, the way bank stocks tremble whenever more news about Elizabeth Warren comes on the scene.

It's true that stock prices may fall due to personnel decisions in the private sector, but even here it's usually in a "positive" way. For example, if a company lures away an important executive from its competitor, that may drive down the stock price of the company losing the skilled employee. However, the move will probably boost the stock price of the acquiring company, so that the industry as a whole doesn't suffer a loss.

Furthermore, even if we focus on the company with the falling price, the reason is that a productive and useful individual is leaving it. This is the opposite of the situation investors face with Elizabeth Warren. Here, they are worried about her starting to work, not about her stopping. Investors are worried that she will "do her job," and that she will prove destructive, not productive.

Defenders of the Obama administration may object to my analysis, arguing that the government needs to provide a regulatory framework, and that of course the affected industries will chafe under the rules. But surely, the Obama defender would say, this new "referee" — whether in the form of Elizabeth Warren or someone else — is providing a benefit to society in general.

Yet this is wrong. There are plenty of "regulatory" agents in the private marketplace, and yet none of them is as adversarial and feared as the government's new agent will be. For example, professional sports leagues employ referees to enforce the rules of the game. It's true, the owner and fans of, say, the New York Knicks might be outraged at a particular call in a critical playoff game. But going into the big game, the analysts on ESPN never dwell on the identities of the referees. Such an analysis would be unheard of, because it's in the interest of the NBA to ensure that the fans think the games are fair. Any referee who consistently made bad calls would lose his job.

There are hosts of other, more mundane examples. An insurance company might send inspectors to verify that a corporate client is following contractually specified procedures, such as maintaining sprinkler systems and smoke detectors. These inspectors would of course be viewed as outsiders by the corporate employees, but the higher-level management would know that they had to keep the inspectors happy because it is important to keep their fire insurance premiums down. For its part, the insurance company would only insist upon precautions that actually made sense economically, because it wouldn't want to lose the corporate client to a rival insurer.


The government creates "jobs" that are destructive. Because there is no feedback of profit and loss, the only thing that can eventually end a harmful bureaucracy is a massive public outcry. In the meantime, private citizens quake in their boots over the zeal of the person who will end up wielding such tremendous and arbitrary power over their lives and businesses.

In contrast, the peaceful market economy rewards excellence. People who wield influence in the private sector achieve their positions because they have demonstrated proficiency, and if they make mistakes they will eventually be fired. Even in situations where there is an apparently adversarial relationship, these appearances are only superficial. Because all relationships in the market are voluntary, even seemingly hostile interactions are part of a larger association that is itself friendly and mutually beneficial.

Robert Murphy, an adjunct scholar of the Mises Institute and a faculty member of the Mises University, runs the blog Free Advice and is the author of The Politically Incorrect Guide to Capitalism, the Study Guide to Man, Economy, and State with Power and Market, the Human Action Study Guide, and The Politically Incorrect Guide to the Great Depression and the New Deal. Send him mail. See Robert P. Murphy's article archives. Comment on the blog.

© 2010 Copyright Robert Murphy - All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

© 2005-2019 - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.

Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules