News & Analysis
More Regulation Is Necessary?
Prospects are not looking too peachy for Democrats this election season. President Barack Obama (left) and Democrats in Congress are getting tarred by the nation's entrenched unemployment and the cost of efforts to reverse the damage. I can understand the malaise that afflicts a nation with close to 15 million people unemployed and millions more underemployed. But the blame is being put in the wrong place. The next election should be a contest over which economic worldview — laissez-faire or Keynesian — turned out to be the better one, and, on that score, the Democrats should win. Deregulation got America into this mess — decades of it — the kind of laissez-faire economics enacted by the Chamber of Commerce, former Federal Reserve Board Chairman Alan Greenspan and Republican leaders. America barely survived life under their tie-regulators'-hands approach to markets. Wall Street sucked up the wealth in this country, hollowing out our productive sectors, while bankers got drunk on risk. It was only after $17 trillion in American household wealth was wiped out in 18 months that Greenspan acknowledged how bankrupt his views were. – Pocono Record, Robyn Blumner
Dominant Social Theme: America needs to reregulate.
Free-Market Analysis: This opinion piece appearing in the American Pocono Record is a great representation of a certain kind of elite dominant social theme: "The marketplace is flawed and government regulatory authority is a necessary corrective, in ever-larger doses if necessary." Now we are not accusing Ms. Blumner of being in cahoots with elite forces. In fact, the article reads quite sincerely, which is in fact more than a little troublesome. It represents a substantive sociopolitical philosophy that is part of the atmosphere at the moment.
Deregulation did not create the mess that America is in. One has to travel backwards in time to figure out where this argument comes from. Start before the Civil-War. America was a mostly agrarian country. There were big cities, sure, but even Manhattan was mostly farmland. Post Civil-War America was far more metropolitan and generally focused on bigger entities. It was increasingly federal rather than municipal. Stock exchanges consolidated in New York; banks did as well. After 1913 the American economy changed drastically. It became far more industrial and far less agrarian.
The combination of the mercantilist Federal Reserve with its debt-based money and the graduated income tax passed at the same time inflicted grievous wounds on the US Republic. Money went from gold and silver to inflatable paper currency. And what wasn't to be inflated away was eventually taxed at ever-higher rates. People went from self-sufficiency to something else. Dependent on central-bank initiated economic surges, people, even the middle and lower-middle classes, began to look for government help during the significant busts that occurred in between. In this sense, mercantilist fractional banking (essentially fiat banking) was the precursor of the welfare state.
Couple this with the Supreme Court's view that corporations are persons and various eviscerations of the Constitution that gave the federal government enormously increased powers and supported more direct voter participation and the American exception gradually subsided. America had been born a republic, but during the 20th century it in many ways began to resemble the European system that its founders had detested. What was lacking of course was a full-scale regulatory state of the kind that Germany had begun to assemble in the 19th century, aped by Britain. This lacunae began to be addressed in the 20th century as the federal congress became more and more active.
Today, of course, the United States is synonymous with regulatory enterprise and has in fact plumbed its lower depths considerably. It seems to us something of a race to the very bottom at this point, with both Europe and China competing with the United States to regulate as Europe did recently, such things as whether or not eggs can be sold by the dozen.
Much has changed in the United States. But to maintain that America needs to reregulate to regain a sound financial footing is to ignore the basis for America's initial industrial success, which was firmly rooted in the free-market. While it is true that fiat-money (regular floods of paper money) can stimulate economies inordinately, the downside of such a system lies in its inevitable economic distortion.
Every few years another boom tempts people away from solid, useful employment into something much less certain. The system encourages speculation and professional rootlessness. The system also crashes regularly, giving rise to claims that private enterprise is flawed and must be regulated. In fact, there is a symbiotic relationship between central banking and the regulatory state, with one supporting the other. It is no coincidence that regulation became far more pervasive in the 20th century, which was also an era of increased central banking.
More and more people have little idea of what it was like to live in an unregulated environment. Both the United States and China are converging on similar systems, each from its own direction. But the result is an unstated dominant social theme that regulation is a necessary part of modern governance. This can certainly be seen in the mainstream media's perspective that the fall of Glass-Steagal was in part responsible for the current financial crisis. Other regulations – or lack thereof – have been cited as well.
The idea that the US Congress, and to a lesser extent other political entities throughout the West could have taken regulatory action to ameliorate the current economic crisis is a kind of elite promotion in our view. Regulation can make things worse but we have a hard time understanding how such governmental action can make life better.
Conclusion: Every regulation in fact is a price fix, creating a queue or some other kind of scarcity or inconvenience – some merely irksome and some life-threatening. Logically, regulation cannot address the ills of modern society. Only an aggressive decoupling of the state itself from the marketplace can do that. Restrain the Invisible Hand, as regulation does, and it ceases to lift us up.
Posted by Owen Jones on 08/03/10 03:44 AM
"Only an aggressive decoupling of the state itself from the..." lives of we, the people, can return us to a life of reality where everyone can pursue his/her end to find riches or not. We're all the same rich or not. And we don't need the feral gum it to figure it out for us.
Posted by William on 08/03/10 05:29 AM
So you deny that preventing bankers from wild speculation with depositor's and investor's money under the protection of the FDIC and ultimately the taxpayer was a good law? Are you serious?
Under your logic, stop lights are only impediments to movement and should be eliminated. Laws against outright theft should be eliminated because they would impinge on the right of thieves to rob everybody else. Just how laissez faire would the world have to be to satisfy you?
How is your view anything but economic anarchy? Is it not the responsibility of the state to maintain a legal system that protects the populace from the ravenous appetites of the irresponsible and the lawless? Does not even common law, in effect, result in regulation? Does not your narrow minded approach insure that a reasonable balance between anarchy and a police state can ever be achieved?
Reply from The Daily Bell
"Does not even common law, in effect, result in regulation?"
Not regulation but resolution at a municipal level.
Posted by Forrest Anderson on 08/03/10 05:52 AM
You gentlepersons know very little of the inside of the Mortgage Industry, and how TPTB set this economy up by ceasing to enforce existing laws.
Had anyone wanted to, a simple requirement of enforcing laws against fraud would have worked nicely, but good old fashioned truth is out of fashion in America, and has been for the past 15 years.
Everyone in the Government is lying, the Banks are lying, and the Mainstream Media is lying ... to each other, and to the populace.
It was never lack of regulation ... merely lack of enforcement of existing regulation. Everyone turned their head, and pretended that the liars game of real estate poker could go on without harm.
We can see how well that turned out.
Reply from The Daily Bell
The real-estate boom was itself a crack-up boom, one that was the byproduct of central bank stimulation. Instead of enforcing (which will never happen) the millions of laws on the books of the federal register, how about doing away with central banking?
And how about letting the buyer beware?
Posted by Stewart Wilcox on 08/03/10 06:12 AM
What nonsense the Daily Bell spouts about regulations and free markets. Its' 'brilliant' idea about less regulation is anarchistic in nature and completely misses the point: in order to co-exist and exchange with each other we must have a set of rules that define our behavior with each other. The Ten Commandments were no more than social rules allowing the Israelites to co-exist " just read them again and check for yourself.
California dabbled with minimum legislation in its Energy Market in the 90's. Enron laughed all the way to the Bank as its' traders fixed markets, and energy users (everyone in California) paid up to ten times the market rate for energy compared to the rest of the USA. It is calculated that Enron took two billion dollars profit from these energy market scams every year until it was stopped when sensible regulations were reintroduced.
So Corporations can steal, but they can do worse than that. I am not against Corporations, but I think we must understand them. If you had the 'free market' that this Journal prescribes you would give Corporations liberties to tread on human rights.
Corporations are not ethical entities, their job is to make money within the legislative framework they exist in: in second world war Nazi Germany, corporations vied with each other to obtain the human fat run off from the concentration camp incinerators to make soap! Many of these corporation are still around today, and they would not think now of getting involved in human death camps " why? Because our laws (regulations) forbid it.
Remove sensible regulations and corporations become criminal in their activities. Its' not their fault " remember they are not ethical entities " they are money making machines. You may be able to point the finger at someone high up in a corporation and say 'he should not have allowed the corporation to do that', but his answer would be, 'Hey, everyone else could do it, and it was legal and we'd loose market advantage if we didn't do it'.
Yes, in the final analysis we should reject that corporate executive's excuse, but he is not as guilty as those who facilitated these bad practices by lack of sensible ethical legislation. It is the social duty of politicians and those who lobby politically to ensure sensible ethical commercial legislation.
Reply from The Daily Bell
"If you had the 'free market' that this Journal prescribes you would give Corporations liberties to tread on human rights."
Actually the Supreme Court already did this, did it not? Aren't corporations are a fiction of judicial fiat?
"Check your premises." -Ayn Rand
Posted by George on 08/03/10 06:56 AM
The only regulation we need is on the Federal Reserve. Their easy money policies have bankrupted the country. A return to sound money would be the natural regulator on any and all shenanigans going on in D.C. then make fractional reserve and central banking illegal...
Posted by DRUNK AND DISORDERLY on 08/03/10 07:31 AM
The DB views have produced some feedback that cry out for more government regulation, wah-wah-wah! It is the exponential, cancerous growth of our Federal government that has gotten us into this untenable economic mess. America has gone wrong, and will get worse until it corrects itself since it seems mortal man cannot. A few steps that could, but won't yet be taken:
Eliminate the unconstitutional laws prohibiting use of gold and silver and the fiat dollar would quickly sink to it's real value.
Reduce the Fed to the role of standardizing transactions among the states to facilitate commerce with no price-fixing authority.
Repeal all drug laws.
Pass no law without a twenty year sunset provision. No law to be passed without the elimination of five laws.
Limit military presence within the U.S. borders only and close all foreign bases.
Posted by Padremike on 08/03/10 07:52 AM
In this, as in most other things in life, it is always a question of "balance."
Posted by Pat Fields on 08/03/10 08:04 AM
William Cite: "How is your view anything but economic anarchy? Is it not the responsibility of the state to maintain a legal system that protects the populace from the ravenous appetites of the irresponsible and the lawless?"
In my youth, I was possessed of a reflexive abhorrence at the proposition of anarchy. As I've aged and expanded my set of studies, I rather find it increasingly appealing in juxtaposition to the logical progression of its alternatives.
Not to be misunderstood ... I yet cling to the organizational advantages afforded by adoption of a governing body ... just one hell of a lot less than what has come to be too commonly accepted.
Like commerce, the legal system has also been commandeered by the Barristocracy. When The People were robbed of their Common Law right to sit in judgment of both Fact AND Law of the cases before them, tyranny had crept up upon them.
Commerce and Law are rightly the exclusive purview of The People as independent individuals. Government is merely administrators of their Sovereign decisions.
Posted by Pat Fields on 08/03/10 08:15 AM
Drunk and Disorderly Cite: "Eliminate the unconstitutional laws prohibiting use of gold and silver and the fiat dollar would quickly sink to it's real value."
The Great American Hoodwinking (a 'meme'!) is that all federal laws apply to the original, ordinary jurisdictions of the united States of America. They do NOT! Most (anymore) are municipal to exclusive federal jurisdiction. Such are the statutes concerning specie money (silver, gold, etc.) viz ...
"There is, however, no Federal statute mandating that a private business, a person or an organization must accept [US] currency or coins as for payment for goods and/or services. Private businesses are free to develop their own policies on whether or not to accept cash unless there is a State law which says otherwise." -- US Treasury Dept.
Click to view link
Posted by Raymond Reiss on 08/03/10 08:19 AM
EVERYTHING IS JUST TOO BIG! Big Government is too big. And Big Business is too big. The numbers are too big. No one could possibly understand numbers like billions and trillions and know with a degree of certainty what they are really doing, and whether their decisions will produce real "value." These theorists conduct experiments (i.e. 52 people) with tightly control parameters and find that 62% (32 people) experience positive results. Then they extrapolate these findings and apply them to 300,000,000 citizens. It is crazy thinking. My mother-in-law called them "educated idiots." You could put them in a room with the lights turned on with their hands tied behind their backs, and they still couldn't find their butts!"
Big Government and Big Business exist because they act as counter balances to one another. If we bust up one side, we will need to bust up the other side too. We need to shift power from the federal government back to the States, and shift power from Wall Street and Big Business back to Main Street. Shifting power from the extreme left and extreme right back to the middle will stabilize the country. A larger, stronger, more engaged middle class will make the country stronger.
Yes, there will still be evil, corruption and bribes, etc., but it will be on a smaller scale.
I say drive the illegals out, eliminate the entitlements that illegals receive (as do other non-productive citizens) and lay off federal bureaucrats. This cuts the federal budget because there are no benefits and the federal payroll is reduced. Power is shift back to the States. If States want to adopt a liberal benefit program, let them do so – all the unproductive people will flock to them.
Then give tax incentives to small business to hire the unemployed, but feather out the amount of incentives over time – a sort of weaning off and stepping down our dependency on the size of the federal government. Then any business deemed to be too big for America to let fail, should be given two years to develop a plan for downsizing itself so that shareholders will reap the benefit. Let Big management take it on the chin! Any big business that does not comply, pays higher taxes – both the business and its top management.
Finally, white collar crime should have punishment that is severe – because it damages the public trust. People guilty of white collar crime should have ALL their net worth seized, lock them up and throw away the key. If we could publicly "cane" them on Wall Street, it would drive a lot of corruption out of the economy!
Posted by DRUNK AND DISORDERLY on 08/03/10 08:30 AM
Thanks Pat – you are quite right! I guess my enthusiasm for something other than a fiat currency exceeded IQ – or maybe I'm still drunk at this hour of the AM, LOL
Posted by Ranger on 08/03/10 09:17 AM
Gentlemen: I note that "william" is a good representation of most self identified "conservatives" I know: they cannot concieve of life without the Feds. Any dimunition of the welfare/warfare state will lead to chaos.
In an honest economic system, anyone would be able to save sound (gold) money at zero interest and have more buying power as the years went on due to the natural efficiency of the free market. This in fact was the case in America before the Federal Reserve was created.
The Feds protect no one but themselves and their privileges. The tax eaters feast on the taxpayer. Until William reconizes that the consolidated government of the United States is a criminal enterprise, he does not even know he is in chains.
Posted by Gilbert Morales on 08/03/10 10:02 AM
Financial regulation has always existed. The current emphasis to control financial institutions and practices existed before the current financial crisis. Financial regulation enforcement is the challenge. Who are the financial enforcers? Are they the same ones creating the finanicial regulations? Money and power will never be separated. Greed and charity will never co-exist. Government and banking will never intertwine.
Posted by Leave Me Be on 08/03/10 11:54 AM
Exactly! The problem is that most men and women in America are indoctrinated to believe that they are "subjects" and live in a nation ruled by the so-called elected representatives in DC.
Breaking through the ignorance and fear and finding ways to help people understand the limited jurisdiction and authority of the Federals is a major challenge. It is not easy, even once you see the the problem.
Posted by Bionic Mosquito on 08/03/10 11:58 AM
For those calling for some regulation, more regulation, better regulation, etc.: you are explicitly stating your belief in a type of human being that does not exist.
One wholly disinterested in his own well-being and advancement, with no regard to be liked or accepted, yet fully able to act fairly and without vindication toward those whom otherwise treat him as an enemy and scoundrel.
The evidence of the fallacy of regulation by government fiat is overwhelming and completely one sided -- so much so that your continuing defense of this indicates a clear lack of curiosity on the subject, and is certainly willful blindness given the obvious shortcomings in the world we actually live in as opposed to the dream world that some of you apparently think can be created.
The market can do a wonderful job of regulation. If enough people don't like a company's product or behaviour...they stop giving money to it. If a company cannot make efficient use of resources, the market will bankrupt it, thus putting an end to the waste -- talk about saving the planet!
You are looking for perfection where none is possible -- I will take the few faults that may remain in a market economy. You can keep this monstrosity we currently have. It is stunning that anyone still worships this false god after such abject failures.
Reply from The Daily Bell
Well done. Thanks.
Posted by Philip Mccormack on 08/03/10 01:02 PM
William." Does not even common law in effect result in regulation? "Firstly, we don't have common law, secondly, we no longer have true trial by jury, so we no longer have democracy. Go to democracy Click to view link and get a proper understanding of true common law. You are a joker, the FDIC paid for by taxpayers is an utter waste of time. Thirdly, common law would result in less regulation. Go to the site and find out why.Happy days. Philip
Posted by Seriously on 08/03/10 01:02 PM
Tell me how regulation is going to help the guy who bought a house he could never afford; then bought toys and cars based on that asset?
How does regulation help the investor who buys whatever his broker tells him without looking into it for himself.
What happened to personal responsibility? Is that all but done in this day and age?
Why do I have to pay for their losses? I shouldn't have to pay for individual or corporate mistakes, but Regulation deems otherwise.
Posted by Michael on 08/03/10 01:28 PM
@ Bionic Mosquito
Thank you for posting something SANE. I cannot believe so many people still drink the government/more regulation kool-aid. Please people, I beg of you " Learn about Austrian Economics, read Murray Rothbard's "Man, Economy, and State" and "For a New Liberty" all of these can be accessed for FREE @ Click to view link.
Open your minds, many of you are looking at regulation while still in the context of a quasi-free economy where the govt. artifically sets interest rates and steals from one person to give to another.
Posted by Bill Ross on 08/03/10 01:48 PM
Dominant Social Theme: America needs to reregulate.
Aargh, and people will still fall for this scat. Maybe, they should be asking not who to trust (no one), but, what to trust: Reality and, what, exactly it is, so far a civilization goes?
Anyway, for those with the wit to follow the factual reasoning, the only regulation required is the "rule of law" (sanction criminals):
Click to view link
...and stop following those who lie, just to prosper by YOUR slavery.
OR ELSE: the grim reaper of "Mathematics of Rule" will continue to smite us until WE DO GET IT:
Click to view link
PS: regulation and / or ANY attempt at central command / control is FUTILE, a false paradigm. THINK about it:
Click to view link
There are far more ways of combining words unfettered by reality into lies than there are of combining words consistent with reality into TRUTH. This is simple matter of permutations and combinations. TRUTH is NOT a democratic consensus. You must actually search for it and have it proven by consistency with nature's laws of action leading to consequence, beyond a shadow of a doubt.
Posted by Slim Pickens on 08/03/10 02:42 PM
"The idea that the US Congress, and to a lesser extent other political entities throughout the West could have taken regulatory action to ameliorate the current economic crisis is a kind of elite promotion in our view. Regulation can make things worse but we have a hard time understanding how such governmental action can make life better."
So true. One need only casually observe the recent Financial Reform Act to realize the idiocy of regulations in general. A 2300 page bill that leaves nearly all the rule writing to 70 federal agencies over the next 7 years. The representatives didn't even write the laws!! It's left to who knows how many lame brained and unelected bureaucrats who have little to no real life experiences concerning business and are, generally speaking, at the bottom of the labor pool in IQ and energy. People with talent look to private companies for employment. Example: The SEC is staffed with the dumbest lawyers in the market especially when compared to those in the private companies being regulated.
How comforting to know the only reason Bernie Madoff was caught was that he turned himself in or that the whole system was headed off the rails for over twenty years and our all knowing government messiahs were the last to know! Thank you Barney Frank and Chris Dodd for saving us from the looming banking crisis! These very same fools who were supposed to protect citizens like William are the ones with their name on this new regulatory bill! Talk about hutzpah!
The only hope, for the world, is some new educational paradigm that would give average citizens a thourough grounding in economics and philosophy from both sides of the spectrum. Also a healthy dose of logical thought training.
The Frank " Dodd Bill. Logical?
Reply from The Daily Bell
"One need only casually observe the recent Financial Reform Act to realize the idiocy of regulations in general. A 2300 page bill that leaves nearly all the rule writing to 70 federal agencies over the next 7 years."
This is indeed a most disturbing evolution of US regulatory democracy.