Monday, May 17, 2010

Ritholtz on Kudlow: Let the Market Rule!

Invictus engages in a bout of cheerful pummeling, bas he beats up Larry Kudlow on the matter of Kudlow's (supposed) preference for free markets.

As Larry Kudlow tells us nightly, “Free market capitalism is the best path to prosperity!” Free markets rock! Get regulations and restrictions out of the way and let good ole free market competition determine the winners and losers. Regulations and government intervention are for (socialist) losers. It’s in our DNA.

Imagine my surprise, then, when I saw a section of the Oil Pollution Act of 1990 (Sec. 1004) that places limits on liability for polluters! How un-free-market-like, to limit BP’s liability in the Gulf of Mexico debacle to a mere rounding error of $75 million! What true free-marketeer would ever stand for such nonsense? ... Let the free markets determine BP’s fate. Why should it be otherwise? Should they face multiple lawsuits and get sued out of existence, that’s nothing

So here’s the deal: What’s good for the goose is good for the gander. If you’re a free-marketeer and believe that BP’s liability for the gulf disaster should be capped by statute — at whatever amount — you’re either not a free-marketeer or a hypocrite.

Fine, beating up on Kudlow is always doing God's work but Invictus may have bitten off more here than he can chew. He's scratching the surface of the more general point: that any free market is a cultural construct, a panoply of custom and choice that represent the more or less arbitrary local definition of "freedom." Just for starters, I wonder how Invictus feels about the campaign for "tort reform," so popular with free-marketeers in general who don't like to get booted when the shoe is on the other foot. Contingent-fee plaintiff's litigation in general could be seen as honoring the principles free-marketeers like best: money rewards geared to private incentives. Somehow, they never see it that way.

Or more generally, how does Invictus (or, come to think of it, Kudlow) feel about the limited liability company? It provides a kind of protection that is identical in principle to the statutory limit that concerns Invictus here.

One could go on. andonandonandon. I won't burden the record here but I will restate the basic point: there is no abstract "freedom" this side of the grave. No market is ever "free," except within the limit of a highly contingent set of constraints that a particular society chooses to define as bearable at a particular point in time.

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