April 21, 2010
NPR had a piece on regulating derivatives this morning in which it presented the industry view that effective regulation will cause the industry to move offshore. The show should have brought on an economist to denounce this protectionist view and the harm that it implies for the economy.
There is no more reason for people in the United States to be concerned about buying derivatives abroad than we are about buying shoes and clothes from abroad. If other countries choose to attract trade in derivatives with a more poorly regulated financial system — implicitly having their taxpayers assume the risk of a meltdown (e.g. Iceland) — then there is no reason that we should not simply buy our derivatives from these countries and concentrate our production on areas in which we enjoy a comparative advantage. NPR should have included the economist’s position in this segment.
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