Vernon Smith Interview
Reason Magazine has a great interview with Vernon Smith, a pioneer in experimental economics.
reason: You say you’re a libertarian with a lot of reservations. The experiments you have run and the research you’ve done over the years really argue that institutions create good and bad behavior.
Smith: As a libertarian, I’d like to emphasize the property rights aspect of it. People say what we need is more regulation. All markets are regulated in terms of property rights, the dos and don’ts. The important thing is that those property rights provide people with the right incentives. What was so devastating in the mortgage market is this separation of mortgage originations from the lender without properly incentivizing the mortgage originator. What’s your incentive to do due diligence if you get your fee up front and then it goes out the back door and down the line?
If only empirics were valued by policy-makers…
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That’s crazy talk. Not enough opportunity for social engineering and graft. After all, that’s the whole point of the game.
So simple yet so profound. By providing fail-safe coverage for the “product” of irresponsible loans, Congress gave con men the opportunity to swindle millions and still thrive. Foreseeable, imprudent and inevitable. Who’d a thunk it!
I wonder to what extent the behavior which Smith observes is dependent on culture and upbringing.
Terrific post, in my possibly minority opinion. There are important issues which transcend the next election and cannot be oversimplified into sound bites.