Regulation

I agree that sometimes the "free market" requires some guidance, but I think the author has a great point - we need to be very careful of how we "regulate" commerce because by definition regulation limits freedom, and freedom of choice is a key aspect of our economy.  I just hope policy makers think through the implications of their decisions before tinkering with the system.

The Regulation Blues
By Bill Murchison
Tuesday, April 1, 2008

The emerging theme is regulation, as in, don't we need more of it? Democrats certainly think we do. Treasury Secretary Henry Paulson's plan to overhaul the regulatory structure for financial institutions gives Democrats a vested interest in disliking it, or appearing to anyway, on account of its birthplace -- the Bush administration.

As everyone who reads blogs or follows the Democratic presidential contest knows, one of the biggest raps on Bush-ism is the administration's penchant, not for regulation of the economy but actually for -- cover your eyes, children -- deregulation, defined as the crumpling up of government oversight powers to the benefit of speculators and other grabby rich people.

The credit/subprime mortgage mess, matrix for the plan Paulson delivered Monday, is the kind of mess you hope you don't have in a presidential year. That's because seekers of high office, or those who back particular seekers, incline to muscle-flexing in the face of challenge. A robust reputation for crisis-handling is supposed to strengthen an office-seeker's credentials.

No shrinking-violet measures will do! Shake 'em up, grab someone by the scruff of the neck -- that's the ticket. Regulate, regulate! For instance, Hillary Clinton wants to freeze home foreclosures and cap credit card interest at 20 percent.
Senator Clinton understands that this will not result in lower interest rates for high-risk credit card applicants, right?  It will result in rejections, forcing these borrows to 
a) go without credit or b) pay even more for an alternative line of credit.  Credit card 
issuers are not going to accept the increased risk posed by these applicants if they 
are legally barred from making enough revenue to offset that risk. 
Barack Obama, who believes that "government has an active role to play," delivered himself last weekend a detailed proposal for, among other things, "stabilizing macroeconomic and financial conditions for sustained growth" and "ensuring fair competition in the marketplace." Oh, yeah? "Sustained growth" meaning what exactly? "Fair competition" defined as... ?

Paulson himself, of course, is on a regulatory roll. Some things clearly need shaking up. Which things? To what degree? With what consequences for general prosperity and the encouragement of risk-taking and innovation?

The laying down of a few markers would seem at this early stage an essential idea. This marker, for instance: Politicians should watch their demonstrated tendency to do too much rather than too little. It's the nature of political poker. You see a remedial plan and you raise. Where's the credit, after all, in merely acceding to someone else's plan?

A second marker: Regulation is going to hurt as well as help. Government regulation tells people what they can't, as opposed to shouldn't, do. What if government gets it wrong? What if some of the things investors aren't, according to regulatory law, supposed to do, in fact need doing for the economy's general advantage, not just the advantage of the stock market villains and buffoons the media see as standing for Wall Street?

A third marker: Where does the government -- any government -- get the competence to figure out the future: What will work, what won't and why? It was the French government, one mustn't forget, that came up with the priceless notion of defending the motherland by erecting an impenetrable line of forts, which the Nazis overwhelmed by simply outflanking them. Risk-takers, not deskbound bureaucrats, understand and sway the future.  Initially I did not like this comparison (the Maginot line as proxy for the regulation of commerce).  After thinking about it more, though, I think it is a pretty good analogy.  Both are lines of defense that are usually constructed to guard against a) a previous threat (which may not reappear in identical form) or b) a future, imagined threat (which may have been incorrectly foreseen).  Also, a major weakness of the Maginot line was is lack of mobility - it is very difficult to move concrete bunkers and forests.  Such is also true with regulatory bodies.  If the situation called for nimble mobility, the bureaucracy may not be able to move quickly enough to head off catastrophe.  

If men were angels, James Madison noted, we wouldn't need government. Well, men aren't angels. Charlatans and sharpers, not to mention fools, walk among us. The laissez-faire approach to economics, however commendable as pure economics (and it's pretty commendable in that sense), won't work in a world populated by the descendants of Adam and Eve. By people, in other words. Five minutes after the most idealistic spirits in the world instituted economic and political anarchy, we'd all be cutting each other's throats.

So: government, yes. But no more of it than we absolutely have to have to get by. The best formula for moving the economy back on track and keeping it there in this challenging time is one that celebrates freedom and innovation and the taking of risks and the reaping of rewards, as opposed to a formula that celebrates bureaucratic suffocation and stultification.

Don't you agree, Sen. Obama? Sen. Clinton? Ah, you don't entirely? Well, maybe that's the "conversation" we all should be having right now, at top volume.