Perpetual Motion

There's a room where the light won't find you
Holding hands while the walls come tumbling down
When they do I'll be right behind you
--Tears for Fears

The "Unintended Consequences" missive by Mr P illustrates the 'whack a mole' nature of government intervention in markets. Knock down a problem over here, a new problem pops up over there.

The article is also instructive in that it demonstrates complex market linkages that are difficult to grasp if you're an outsider looking in. Heck, while reading Mr P's narrative, I had to draw a little flow chart in order to understand the connection between Fed collateral acceptance policies and a collapsing convertible bond market.

Chances of bureaucrats not knowing what they are affecting when they meddle in complex social systems are extremely high. As Mr P asserts, they lack sufficient knowledge, plus they are driven by political motivation.

The unintended, adverse consequences of government intervention implies a couple of things. For investors, meddling reduces future returns on capital, which will impair investment and suppress stock prices.

For citizens in general, intervention today locks in a lower standard of living for tomorrow.