Has The God of Deregulation Failed?

By Richard W. Crockett



I have said it before and I will say it again.  I know of no social system, which can operate successfully without rules.  And that is of course what has been expected since about 1980. We have deregulated the economy with the hope that market forces, which are mistakenly believed to work perfectly, will correct anomalies and excesses in the marketplace.  Regulation came to be the dirty word, and de-regulation was worshiped as the new secular Deity.  But it is nothing less that the rule of law that we are talking about.   We have traded man-made law for the “forces of nature.”  Do not forget what Thomas Hobbes taught us about nature; that in the state of nature, “life is solitary, poor, nasty, brutish and short.” And so after our drunken binge with no-rules-deuces-wild economics, we are asking the taxpayers and man-made institutions to bail us out.  Moreover, did you notice how it is being done?  The guys running the man-made institutions are rushing in to bail out the villains, not the victims.   The error in Ronald Reagan’s famous remark, “Government is not part of the solution; its part of the problem,” screams out at us today.  For Reagan’s Republican successors are now taking refuge in the so-called problem government to rescue the previously worshiped private sector.  How come?  Have the high priests of unbridled corporate capitalism discovered that their God has failed and have come to the people looking for a new God?  Don’t kid yourself. It is simply panic and greed, or as George McGovern famously put it, “socialism for the rich.”  What is to be done? I personally think no company or bank should be bailed out where the CEO makes more than four times the lowest paid employee, or continues to do so after the bail out, including all the subterfuges that they may attempt to contrive to circumvent this rule.  Not practical or achievable? Well then, I think Barak Obama is close to having it right.


“More of the same failed ideas are not going to solve our economic problems. I'm calling for a $1,000 tax break for middle-class families -- not just because they need help dealing with the rising costs of gas, food, and health care, but also because our economy needs to be reinvigorated from the bottom up, not the top down. I'm proposing a second stimulus package to save over one million jobs and provide immediate relief to struggling families.”   OK, reinvigorate the economy from the bottom up, not from the top down. It is the plain recognition that business cannot exist without customers. Top down economic policies ignore this fact.

Obama again.  “And I'll end the ‘anything goes’ culture on Wall Street with real regulation. We can see clearly that our economy is stronger when we protect investments and pensions, and avoid devastating bankruptcies and bailouts.”  Definitely protect pensions.  We can see where we would be if the Republicans had succeeded in privatizing Social Security.

And finally, Obama is right about this. “This is no ordinary time, and it shouldn't be an ordinary election.” I agree, and it should be the end of the “ownership society” in which the minions of capital seem to own everything, including the government.


With the present administration, we have an attempt at rescuing “the malefactors of great wealth,” to use an expression from Teddy Roosevelt.  According to the New York Times, “Henry M. Paulson Jr., the Treasury secretary, made it clear that the upfront cost of the rescue proposal could easily be $500 billion, and outside experts predicted that it could reach $1 trillion.”  The plan includes “buying assets only from United States financial institutions—not hedge funds.”   The Democrats in congress are getting on board with the plan, but are insisting on one caveat—“that the measure include relief for deeply indebted homeowners, not just for banks and Wall Street firms.”  Notice the form that the rescue takes. It exemplifies the difference between Democrats and Republicans.  It is sometimes said of “big government loving Democrats” that they maintain themselves in power through a kind of political machine where government workers help them to win elections.  The Republicans on the other hand are privatizers (perhaps privateers) who like to use the private sector by contracting out government responsibilities—taxpayer dollars dispensed through a kind of political vending machine. Well, guess what. Secretary Paulson, according to the New York Times, on Friday said, “He did not want to create a new government agency to handle the rescue plan.  Rather, he said, the Treasury Department would hire professional investment managers to oversee what could be a huge portfolio of mortgage-backed securities.”  More contracting? Or will they be government employees? Does the government pay enough to get these people on board, or will they have to “contract” with them?  Further could the size of the portfolios to be managed be reduced if Housing and Urban Development (HUD) rewrote the mortgages for borrowers and structured the debt so that the borrower could afford it?  By doing this, the taxpayers could recover at least some of their hard earned dollars when most of the mortgages are paid back.


A final point.  Where do these guys get their advice on the economy?  This could be an important question in this election.  Are they getting advice from deregulators like former Senator Phil Graham, McCain’s chief economic advisor until recently, when Graham called the American people a bunch of “whiners,” and insisted that there was no impending recession or depression, except for a “mental depression.”  It was all in our minds. And what of Obama?  The New Republic tells us that Obama’s “inner wonk-dom” . . .”is dominated by a group of first-rate economists,” including Austan Goolsbee, Robert P. Gwinn Professor of Economics at the University of Chicago, David Cutler, Otto Eckstein Professor of Applied Economics at Harvard University, and Jeffrey Liebman, the Malcolm Weiner Professor of Public Policy at Harvard University. These are heavyweights in their respective fields with expertise in tax policy, health care policy, and social security.  They tend to be centrists.