Tuesday, 9 September 2008

Another Deregulation Disaster

Eight years of Bush-Cheney have given us ample proof that simplistic allegiance to the mantras of free market fundamentalism give way to economic disaster. As Henry Paulson, pragmatic Treasury Secretary, moved to have the government take control of mortgage lending giants Fannie Mae & Freddie Mac, it is harder and harder to defend privatization and deregulation as the cornerstones of sound economic policy.

Of course none of this stopped most Republicans at their recent convention from acting like they still carry the torch for smaller government and freer markets. Economic ideologues steeped in the language of the supremacy of the market over government controls aren't likely to admit that blind adherence to their philosophy by so many since the Reagan years has cost us dearly.

I'm sure we will continue to hear about the evils of "burdensome regulations" proposed by Democrats and liberals. Conservative Senator Bunning of Kentucky amusingly called for the resignations of Paulson and Federal Reserve Chief Ben Bernanke, saying "they have taken the free market out of the free market." Bunning has clearly sipped too much of the free market fundamentalism Kool-Aid.

But don't misunderstand. There IS plenty to criticize in the Paulson plan. Senator Obama while he generally supports the plan, expressed concern that we "not allow government intervention to protect investors and speculators who relied on the government to reap massive profits." Economist Max Fraad Wolff speaking on Democracy Now! this morning pointed to the government assumption of risk without fully taking over the institutions, and the likelihood that the government will end up taking on the role of a collection agency, gathering debt from homeowners to pay off debt to investors, foreign and otherwise. The help for struggling homeowners is meek in comparison. He offers a quick history lesson, and some amusing insights into Governor Palin's comments about Fannie Mae and Freddie Mac. It is definitely worth a read.

Make no mistake that regulations can be burdensome. Often the mega-corporations which write them make them unnecessarily complicated, disadvantaging smaller firms who might want to compete. But if you are still convinced that deregulation and privatization are always necessarily better, let's review some recent troubles which had their genesis in deregulation:

  • Sub-prime lending

  • Wall Street investment scandals

  • Media consolidation

  • Enron, Tyco, WorldCom, etc corporate scandals

Yes, of course, there were also criminal acts involved in many of the corporate scandals, but deregulation allowed so much wrongdoing to go on legally, that disaster was simply bound to happen sooner or later.

Our economy is complicated. We need the best and the brightest conferring to determine the role government can play in regulating markets sanely. Not with some ideological pablum whether from the Heritage Foundation or the Socialist Labor Party.

America should be ready for some sane re-regulation. Regulation which allows markets enough freedom to flourish, but denies corporate bosses the authorship of all the rules. There is no reason that regulation can't be both stronger and less complicated. First we need to check the influence of lobbyists.

Fortunately both Presidential campaigns have decried the influence of lobbyists. I'm more inclined to go with Obama who has refused lobbyist money, than McCain who has former lobbyists as key campaign staffers. I understand that it's not all black and white. Obama's campaign is not void of lobbyist influence, and McCain has on occasions stood up to lobbyists. But on balance Obama will have less campaign obligations to lobbyists, and McCain may have significant blind spots where the former interests of his staffers are concerned. I'll hope for the best regardless who wins.

More importantly, America needs to turn the page, and say good bye and good riddance to the failed mantra of deregulation for deregulation's sake.

1 comment:

jg said...


while that blog is partisan, the links are not. but why should obama be honest about the matter at hand when the catch-phrase of "bush's failed policies" resonates so much better with his followers, right?