Addendum to my previous post; I received several off list replies that made me remember two underlining concepts that I missed before. (That's what happens when I try to catch up a week's worth of emails in one day.)
Balance of Power: Briefly; this is why monopolies and oligopolies are regulated, but it affects any transaction where one party has less power to agree to the terms of a transaction. This is also the reason there are non-discriminatory pricing laws. In a life or death situation you do not want to be haggling over the price of treatment. Regulation of monopolies and oligopolies is rarely the optimal solution, reduced innovation for one example, but it is better than the alternative of no regulation. Before you clamor to de-regulate some industry, ask your self if it will really create economic completion, or will it just increase the pricing power of the previously regulated. The airline and trucking industries are two examples of very successful de-regulation, while the de-regulation of the electric power industry was not successful, think Enron's manipulation of the market. There are other examples of financial regulations from the Great Depression, de-regulated in the 90's, and biting us today. The concept is Trust, or maybe lack of it. This concept underlies not just transactions but relationships. In the first part of this century we heard calls to get rid of governmental and quasi-governmental institutions like the Fed, the FDIC, and SEC. As you go through all your financial transactions think about how much trust you have to put into others. I could walk around with gold and silver coins making all my purchases in person, but of course that would give all my local merchants more pricing power. If I put my money in a bank, could I trust that any merchants would honor the bank receipt (local bank issued currency), you could forget EBay and PayPal, and I do not think Flying Miata would accept a check on a far away bank where they had to rely on a chain of correspondent banks to get the check cleared. We rely on others to regulate and audit the behavior financial institutions because in the past those institutions failed our trust and it is more economical to have someone regulate and audit than to rely on each individual. I can image what it would be like if every depositor at a bank showed up to individually audit the bank, or the circus when each depositor individually has to sue the banker when the bank fails. Generally if you trust someone more and regulate them less, then you have to increase the punishments for betraying that trust. There are times I think it would be a good idea to bring back drawing-and-quartering. But none of the calls I have heard for de-regulation and "you can trust us" also call for increasing punishments if they fail in that trust.
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