An Economist Who Doesn’t Believe People Respond to Incentives

Ladies and gentlemen, Tyler (“So Right It Hurts“) Cowen presents the following, er, argument:

Excessive bank regulation is another danger. To be sure, the regulatory structure for financial institutions failed in the current crisis, and change is in order. But we shouldn’t reform in a way that will discourage bank lending and weaken the tie between savings and investment. Banks are already allergic to very risky mortgages — probably excessively so — and we shouldn’t overreact by punishing them for past mistakes. [emphasis mine]

Somewhere, an Economic Angel had its wings rent asunder.