Smokey the Bear on Wall Street

Thanks to the recent financial crises in the mortgage industry and investment banking, Americans are now being treated to a high volume screaming match over how much the US government should regulate Wall Street, and what role the government should play in the bailout of companies and individuals hit by the current financial firestorm. As I listen and the dull pain in my head grows, I keep asking why the US government repeatedly believes it can predict — and hence manage — complex chaotic systems. Why does Smokey the Bear suddenly think he can put out the fires in our economy?

For years, the ill conceived policy of the US Forest Service was to put out every little forest fire as soon as it started. After years of preventing forest fires, the deadwood and other debris built up in nearly every National Park and National Forest until the point where, starting in the 1980s, any forest fire potentially could turn into a massive inferno destroying thousands of square miles of forests and homes.

These “super-fires” burn far hotter and are far more destructive that anything that occurred naturally before the US Forest Service got involved. And the result of the super-fires has been severe devastation and in some cases destruction of species and ecosystems that had always survived “natural forest fires” before the US government got involved.

As with forest fires, humans aren’t smart enough to manage or control massive chaotic systems like a free market economy. The current problem is not inherent in the economy — it is the arrogant politicians who have ideological arguments about how best to regulate Wall Street, the financial sector, etc., and then decide to act as if they knew what they were doing. What those politicians have done is regulated the system just enough to prevent the small failures (which might have destroyed a single company, but wouldn’t have reached any sort of national crisis level). And without those small failures, all of the bad debt and corruption piles up over years until the time when if one company finally does fail, it ignites another failure and another and another, causing a massive firestorm throughout the economy.

The definition of a “free market” inherently states that the government is not involved. A government can’t control (regulate) a free market. So maybe it’s time for the economic forest rangers to find a new occupation. After all, as Smokey always reminds us, “Only you can prevent forest fires.”