Regulation time?(on the right)(subprime-mortgage phenomenon)

NEW YORK, JANUARY 2

SOCIAL critics are despondent over the failure absolutely to fix blame on somebody for the terrible subprime-mortgage phenomenon. There's the temptation to blame a phenomenon judged to be malicious, or at best thoughtless, on an institutional feature of the free-market system. Jared Bernstein of the Economic Policy Institute in Washington cites a pressing need for regulation, the invisible hand of the marketplace having failed us.

It is useful to remind ourselves that the market does not pose as, or at least ought not to pose as, an executor of justice. If John and Jim, apparently equally endowed and equally motivated, launch identical business enterprises and John succeeds while Jim fails, one can't look to the market to weigh the two entrepreneurs by meritocratic standards. The market can't judge what role sheer luck played in the different outcomes. Free-market theory intervenes only to say that Jim, the loser, should himself bear the costs of failure.

As opposed to what?

Well, as opposed to taxing John from his earnings sufficiently to compensate Jim for his failure. The market seeks simply to individuate the winner and the loser. Interventionists are moved by a desire to temper the judgments of the marketplace, and the way to do this is: by regulation.

Regulation in some form or other is almost everywhere licensed and, generally, applauded. If competitors run taxi companies, regulation denies to any one of them an exclusive franchise: Do not seek to eliminate the competition. And there is regulation built into progressive taxation: The winner climbs into a higher tax bracket, and is thus burdened to the advantage (in the short term) of the competitor.

The mortgage crisis came on because our free society did not think to intervene at a juncture where it could have limited the effects of cosmic thoughtlessness and insouciant greed. So that the question now arises: How does society single out the gross ...