I think the discussion is getting lost here. We recognize that the current system is a partially-free, but heavily-regulated structure. Now the question is, what were the weaknesses in the system? What were the points of failure?

Leftists are saying that the problem was that the system was too free. Libertarians are saying that the main problem lies with the corruption and inefficiency of regulation. Neither point is trivial, neither point can be dismissed as ideological rhetoric.

There are those libertarians who will always blame the government for every problem until we live under Rothbardian anarchy. You may think that position is idiotic, and you are welcome to do so. However, the leftists who blame every problem on "the unfettered free market" sound equally idiotic to my ears in a world with regulatory agencies with multi-billion dollar budgets and hundreds of thousands of pages of rules controlling trillions of dollars of capital every day.

So, don't dismiss all claims of misregulation even if some of the critics are unhinged. After all, if something is wrong there, we would expect it to have large effects. My old firm spent at least a seven-figure number each year to comply with regulatory rules, and it wasn't very large.

Oh, I agree completely that some on the left make plenty of bad statements of their own and are altogether too ready to blame markets for various things. I'm sort of a centrist and believe that many things need to be worked out by trial and error. This means that people basically need to be free to try, but that, in some cases, errors also need to be dealt with, and sometimes, the government is the most efficient way to deal with them. Often, local governments are preferable to farther away/bigger ones, but some issues are also dealt with best on a larger scale.

I think a major problem is that governments are large, monopolistic, and tend to copy each other. How do you know what really works if you don't have different models to look at?

We see some competition between governments in areas like the European Union that have free trade and free movement. This has resulted in tax rates being lowered and business being liberalized across the EU. However, the European Union cooperates on some things, such as financial regulation, so we won't see any competition between different models there.

I think the US is much too large in terms of people, GDP, and land area to be efficiently governed by one entity. The law is crusted over with special interest regulation and really needs a rethinking. However, I doubt that is likely to change any time soon.

And I agree with you that trial and error is a good way of proceeding. The problem is that the visibility and the severity of an error are not always correlated. It is easy to fix visible problems but not get closer to an efficient model.

> tend to copy each other

Sure. We've found a model that works pretty well, and a whole lot better than various recent experiments, so it's a fairly safe bet. Who wouldn't want to copy that?

> US is much too large in terms

Difficult to say. It's not run worse than plenty of smaller countries, and has one huge advantage: it's an ironclad free trade area.

> I think the US is much too large in terms of people, GDP, and land area to be efficiently governed by one entity.

I've felt that way for a while now. People need to feel they have sovereignty, so "states" should never get too large. Also, as Taleb said in The Black Swan about mergers: the lower diversity means that when one fails, it's catastrophic. Instead of 300 million people trying to decide on Red or Blue, we could have 50 states that catered to every style, much as in Europe.

You should read some John Dewey if you haven't, his philosophy meshes well with your's.

I think the problem is not regulation, but that regulations are almost always implemented after something has gone wrong.

Regulations should be more dynamic. If it looks like someone has found a loophole, they shouldn't be afraid to plug it before it becomes a problem. But they should also be more active in modifying and "optimizing" existing regulations, so long as they don't do it too often.

There is also a disconnect (related to your comment) between what the left (and centre) are accusing, and what libertarians defend against.

The left are simply claiming that this was caused by market liberalisation. Increasing market liberalisation would make it worse. The free marketeers are then countering by saying it was never totally free. You can't use that situation to judge anything.

I think Lewis' point is that regulation we have today has gotten into a position of disguising real risk when it should be exposing risk so it can be fixed quickly. If we don't have failure and risk then the market can't work. The liberals want more regulation while the libertarians want less. If we had regulation that could drop MBIA's triple A score when it started doing more risky investments, or a SEC that investigated fraud when someone basically handed them all the facts that they needed to validate then wouldn't those problems be contained to a much smaller impact?

What I hear Lewis saying is that we are over-regulated with ineffective regulation. All the institutions are there, but they don't really do anything to protect the markets from financial meltdowns like these. If you're still asking what are the weaknesses of the system, and what are the points of failure I'm not sure you read the article.

I appreciate that you're basically defending me here, but your distinction between libertarian anarchists and leftist socialists is a false dichotomy. As governments grow more socialist, socialists blame society's growing problems on capitalism; libertarians blame them on socialism.

I think the question of more or less regulation independent of what that regulation is is basically meaningless. It'd be much better if that extremely abstract argument was much less common than a real look at the specifics.

Markets with greater freedom don't have as many shitstorms as markets with less freedom. Example: Chile, the most capitalist country in Latin America, and the one with the most economic freedom, is also close to being the richest per capita (...I have my doubts about Argentinian GDP reporting) along with the similarly free Costa Rica. Sure, Chile has a lot of mineral wealth, but so do a lot of other Latin American countries.

Really free markets do exist and have existed in many times and places, and they work really well. The reason they work well is because they have the proper incentive structure to realize good outcomes (as judged by the participants in the market). The "if only" game is worthwhile because it allows us to see the outcomes of different incentive structures without running costly (and sometimes fatal) social experiments.

Our financial system is a wreck; it's time to change tack. If you want to sail with the wind, it helps to know which way it is blowing.

What, you mean I can't just project my Platonic ideology onto the real world have it work exacty as I envision?

The devil you say, David!

>> Really, really, really real free markets never seem to exist, though.

What, pray tell, do you think the black market is?

they're not free since they have constraints. Those constraints bring prices higher. there is no free flow of information either in black markets

Learn economics.