In here talk Deirdre McCloskey said:
Big Question: quis custodiet custodiem? Who is going to “regulate” the government, and “protect” us from government? I claim that markets do so.
Governments reward the corrupt (both within government and in corporations). The huge bailouts in USA are a classic example. Those who worked hands-in-glove with government regulators to loot Americans were rewarded with bonuses – on the spurious ground that their business was too big to fail. It is like saying that if you murder 1000 people you must are to Heaven by God.
So how do markets regulate the government?
1) Well, the first thing is that markets punish crony capitalists. In his blog post yesterday Ajay Shah points out that according to Shekhar Gupta:
If you draw a simple chart of the large companies that have lost the most value on the stock markets over the past three years, you'd notice that almost all of these were doing business on the same cusp of politics, finance and natural resources. To that extent, you have to admit that the market has been the first to sense the rot and has applied a stunning self-correction, severely punishing those responsible for it.
This relates to India, but I'm sure it also applies in USA. This is a universal law. That markets are moral. They PUNISH the corrupt. Customers walk away. (Governments, on the other hand, REWARD corrupt corporations.)
2) But citizens walk away from governments, too, in the end. Governments too are not entirely exempt from punishment by markets. Like I have walked away, a refugee from Indian corruption, from the gangsters who are looting India.