Bernard Madoff's alleged $50 billion fraud is another interesting example of the limits of governments to enforce their own rules. As this opinion piece in today’s Wall Street Journal argues, in spite of the huge increase in the SEC’s budget since the fall of Enron (from $377m to $900m) and its army of staff devoted to enforcement, they didn’t notice that perhaps the most successful hedge funds manager was a fraud (when many people in the industry suspected as much).

In the current times, there is little hope that governments will take notice of their own failures, and draw the right conclusions. SEC failures give credence to Peter Boettke’s project on anarchy. Anarchy as a Research Program should be high on the Austrian agenda. The more rules governments must enforce, the less they will be able to do so adequately. Instead, one should rely on the incentives people have to successfully enforce the arrangements they themselves establish or on the reputation of others to enforce those arrangements. As the WSJ puts it:

The fact is that the only people who seem to have taken concrete action to protect investors from Mr. Madoff are private research shops like Aksia LLC. Its analysts did the real work of figuring out that Mr. Madoff's claimed investment strategy couldn't be happening at the volumes he claimed to be trading. Likewise, it was the short sellers who first blew the whistle on Enron, while the SEC was clueless and the firm's auditors were asleep.

The SEC not only aims at stopping activities that are generally legitimate and desirable, but when there are cases of actual fraud, the SEC can’t stop them. The SEC is another agency that should be abolished. Again, one can only agree with the WSJ and prepare for more useless public spending: