Enron

many statists claim that Enron was the result of the free market failing, they had a good reputation and were thought of as generally safe. How should I properly refute this claim.

Also my teacher who I posted about before is going to show us the Enron movie so yea..lol

Good question...

Well, wasn't the SEC and other branches of the government supposed to prevent that kind of thing ? If the market failed, so did the state.

Every con man has a weak point, a hint to his shadowy activities that he cannot cover. In a free market, there's little possibility that someone would get the benefit of the doubt when it comes to investments - people would demand comprehensive, gapless information about the state of the business and they would additionally hire professionals who make a living investigating this kind of thing before putting their money into it. One flaw by one of these investigators and they'll lose credibility - they'll have a mega-incentive to do every research possible before making a judgment. As compared to bureaucrats whose mere existence is sufficient for them to get paid.

In a statist society, a great margin of people is seduced to believe that everything's all right due to government observers. Con men do get the benefit of the doubt here much more often than they would on a free market.

Of course, we cannot rule out that Enron may also be possible without the state - but it's much more unlikely.

Sphairon:

In a statist society, a great margin of people is seduced to believe that everything's all right due to government observers. Con men do get the benefit of the doubt here much more often than they would on a free market.

Good point

I've heard claims like this too.  The funny part is they're essentially saying that we can't have a free market because of something bad that happened in a heavily regulated and unfree market.  Shouldn't their argument be the other way around?!

Statists usually argue we need government to pass laws to prevent undesired behavior and to catch the guys who engage in it anyway.  Enron got away with their shady accounting practices for a while and it was private citizens, not the government, who first started questioning their practices.  So the government failed to do its job on both counts.  And when you have government, you have the possibility of companies paying off the people you handed over your power to.  But I'm sure that didn't happen in the Enron case.  It's not like they gave millions of dollars to prominent politicians and actively lobbied congress:  http://www.rediff.com/money/2002/jan/12enron.htm

Scandals will always be possible, no matter what system we're living under.  The question is, which system minimizes them and their damage?

In a free market, the "regulations" and accounting practices are created and maintained by the people who they matter most to, not some guys in Washington who don't know the first thing about markets.  You also have more power to prevent or deal with scandal, because the politicians haven't sold it away.

 

 

Enron collapsed like a cheap suitcase after an analyst asked a question about a single line item on their balance sheet.  If stock valuation were done by government agencies, they'd still be haggling over source documents.