Tuesday, October 09, 2012

Pursuing the perfect at the expense of the good

Markets normally start as a totally unregulated eruption of transactions as individuals seek to solve new problems and meet new needs as they emerge. The intervention of government commonly occurs down the track a way, when unfettered free enterprise leads to incidents which undermine the confidence of buyers (an essential prerequisite of a working market.) Sellers are then subject to varying levels of control that, at best, drive the opportunists out of the market and protect the interests of buyers and sellers alike. Never before in our experience has a market been formed regulation-first, in the spirit of control rather than in the spirit of innovation and enterprise. Built from the basement upwards like Fort Knox, with every possible outcome regulated, it is an elegant solution from the point of view of a designer of administrative systems. But it lacks the essential ingredient that makes a market work: the words "free" and "enterprise". A market works when both parties are willing to treat. Buyers will buy and sellers will sell. They turn up because they are confident that they will get something they value. Under-regulate and the buyer will either shy away from the market because the risk is too high or manage the risk down by means of price. Over-regulate and you drive the cost of compliance too high for sellers. Both outcomes block supply. You cannot assume supply while focussing exclusively on demand. As Freddie Sharpe of Climate Friendly said in the meeting of meth proponents in Melbourne, "Could it be that we are seeking the perfect at the expense of the good." Or as General George S Patton said: "A good plan executed today is better that a perfect plan executed at some indefinite time in the future." (You will hear Freddie speak at the Carbon Farming Conference on 23/24 October in Dubbo, NSW (carbonfarmingconference.com.au)

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