Deregulation and the Financial Crisis
| Peter Klein |
Niall Ferguson joins Charles Calomiris, Jerry O’Driscoll, Arnold Kling, and many others in questioning the supposed link between “deregulation” and the financial crisis. As Ferguson emphasizes, the timing is all wrong; there is no time-series correlation between specific patterns of regulation and deregulation and particular financial or economic outcomes. The relaxation of Glass-Steagall restrictions on universal banking is an oft-cited example, but, as these writers point out, no one has offered any specific mechanism by which universal banking contributed to the problem (indeed, the opposite is likely to be true). The “laissez-faire caused the crisis” meme may be pithy, but is there any systematic theoretical or empirical evidence for it?
Ferguson has the best line (suggested by Luke): “It is indeed impressive how rapidly the economists who failed to predict this crisis . . . have been able to produce such a satisfying story about its origins.”