Making Fun of the Free Market has “Gone Too Far”

Published on December 02, 2009

If Cliff Asness, MBA ’91, PhD ’94, had a magic wand, he’d shrink government into a tiny book containing very few rules.

Asness, managing and founding principal of the hedge fund AQR Capital Management, labeled any government action a “tyranny” in that it goes against a percentage of people who oppose the action using the threat of coercion or even force. “Tyranny is bad” and “redistribution is theft,” he said, decrying government expansion in a keynote speech at the Investment Management Conference on November 11 at the University Club. The student-led Investment Management and Hedge Fund groups sponsored the event.

Still, Asness said he holds Libertarian views, not anarchist views. “I don’t think you can have a world of complete anarchy and no rules,” he said. Pointing to Bernie Madoff’s story, Asness said it shouldn’t lead to the conclusion that the financial world is underregulated, but simply that there was a failure to find violations.

He questioned the possibility of building a set of regulations that would hold back people with evil financial intent. “It’s perhaps more dangerous to ever think we can find them all than to acknowledge we have very little power to find them,” he said.

Asness condemned a “media siege” against capitalism. “People actually use the term ‘free market’ with derision, like it’s been proven not to work,” he said. “It’s popular, it’s cool, it’s hip, it’s fun to make fun of the free market.” The practice has “gone way too far,” Asness said. “It’s like a parasite making fun of its host organism — until the host organism dies.”

Government should stay away from pronouncements that “longing oil is bad” or that “shorting stocks is bad,” Asness said. “Why don’t we just have a price czar who’ll come along and tell us what the price of stocks and the price of oil should be?”

Likewise, growing protectionism “is pretty much a textbook way to turn a recession into a depression,” Asness said. “I think this growth of government is going to slow the growth of the economy for a lot of years,” but protectionism is perhaps one of the most harmful practices, he said.

Asness equated the Stimulus Package with destroying wealth to build it back up. He also spoke out against government bailouts and a “too big to fail” policy. “A good 80 percent of our problems with government regulations somehow go back to ‘too big to fail’ as a concept,” he said.

Punishing failure “is at least half the game,” Asness said. “Too big to fail” policies, which have been around for more than two decades, have had major consequences, he said, “and letting people fail sends the right signal to markets.” If that is done, “you won’t need as much regulation,” he said.

Aarti Raghavan, a first-year student in the Full-Time MBA Program, said she found his outspokenness “refreshing” and agreed with Asness about regulation. “There’s always a call for more regulation. But the thing is, that’s just going to lull you into a false sense of security.”

                                                                                                                —Mary Sue Penn

 Read more from the Investment Management Conference about PIMCO’s Mark Kiesel, ’96, on trends that show the “big picture.”