June 30, 2002

JIM BENNETT has some observations on current business scandals:

One of the principal critiques of alternative theories of the state is that by trying to do many things for which it is not suited, government inevitably neglects the basic tasks for which it is suited.

Indeed, it is worth noting that Enron, WorldCom, and a number of the other firms most noted for massive fraud operated in highly regulated market areas. Regulation, as opposed to enforcement of laws against fraud and misrepresentation, increases the hazard of fraud and misrepresentation, by raising the stakes for political manipulation. Increased disclosure requirements, beyond a reasonable level, actually aid fraud by hiding the significant data in a sea of irrelevant information.

The entrepreneurial market economy is a remarkably self-correcting system, provided that the system is protected against simple fraud. The problem has not been the concept of the watchman state, but the distraction of the watchman.