Jeff Friedman and Wladimir Kraus have a paper at AEI posted arguing that de-regulation did not cause the financial crisis, and in fact that it was certain regulations that are to blame. I have been informed by Friedman, that he and Kraus have a forthcoming book from U of Penn Press on the topic that will complement the publication in book form of the Critical Review issue on the financial crisis. Congratulations to Jeff and Wlad for both the AEI article and the book contract. What a great opportunity to set the record straight and challenge the conventional 'wisdom' that has emerged about the policies that resulted in the financial crisis of 2008.*
I think it might be useful to discuss the argument by Friedman and Kraus on our understanding of capitalism that appears at the end of their AEI paper, and also their interpretation of Alchian's 1950 paper and the self-interest proposition in economics. BTW, Friedman and Kraus could update from Alchian to the 1993 JPE paper "Allocative Efficiency of Markets with Zero-Intelligence Traders: Market As a Partial Substitute for Individual Rationality" by Gode and Sunder. But note the term "partial substitute" -- and also I'd point to Vernon Smith's idea of "ecological rationality" as critical for any of these discussions, as well as, Hayek's "Individualism: True and False".
In the Liberty Fund edition of Israel Kirzner's The Economic Point of View, Fred and I reproduce the debate between Kirzner and Gary Becker on the rationality hypothesis and market efficiency. That debate is obviously relevant for these discussions as well.
*I, however, also agree with Russ Roberts in his "wait a minute Jeff" point about the moral hazard and too big to fail question. Planning to be bailed out is not necessary for the economists argument, but how the expectation impacts decision-making on the margin does. Also, doing and saying is not the same thing. As Wicksteed put as the epigraph of The Common-Sense of Political Economy, "We are all doing it, but none of us know we are doing it." I have tried to make this point, exactly the way Russ does, to Jeff on several occasions without success. I am chalking it up to a disciplinary divide, and point once again to the Lester-Machlup debate from the 1950s.