Even before the crisis, polls showed that the public overwhelmingly favors regulation to protect ordinary citizens from shoddy products and sharp practices. The spectacle of failure being rewarded during the financial crisis while the rest of us suffered in the resulting economic downdraft has led even people who are cautious about regulation in goods markets to acknowledge that finance is different and needs vigilant oversight.
The Massachusetts Senate race provides a reminder. Scott Brown has been playing up the bankster caricature of Elizabeth Warren a a power-mad, business-hating Commie. If anyone bothered checking her calendar during her time as a consultant to the Treasury launching the CFPB, it shows that Warren bent over backwards to meet with bankers and solicit input. And the idea that the sort of regulation that Warren favors is bad for the public (or anyone other than overreaching businessmen) is a stretch (remember, Warren was once a Republican). And of course, this sort of attack serves to reinforce the canard that regulation is bad (as opposed to “bad regulation is bad” just as “bad Scotch is bad”)
The fact that Warren took her job as the head of the Congressional Oversight Panel seriously produced a huge win for the public. As Matt Stoller recounts in an article in Salon, the COP under Warren incurred $10.7 million in expenses. One action alone, that of finding that Treasury was letting banks buy back their TARP warrants on the cheap, saved taxpayers over $1 billion. That isn’t Warren campaign PR; that’s the conclusion of a new paper by Lucas Puente, a Stanford political scientist, published in PS. Political Science and Politics. Similarly, while Neil Barofsky’s role at SIGTARP was circumscribed (he could only pursue frauds that were directly related to TARP), he separately saved over a half a billion of taxpayer monies.
More generally, the case for government intervention is strong when externalities are involved. “Externalities” is economese for “when the parties to a transaction impose a cost on an unrelated party.” The prototypical example is pollution: the factory in your town that sells all its output to bigger companies pumps out particulate garbage and you get a lung disease as a result. Economists often rely on the work of Martin Weitzman in determining how to deal with this sort of problem, since there are two broad courses policymakers can take. One is to tax the polluter, to make his cost of goods reflect the true social cost. The other route is prohibition or regulation, so simply forbid him from doing certain things unless he meets certain standards.
Weitzman’s argued that the government can never get this perfect, so the question of which approach to use depends on social costs versus private costs. If the cost to the polluter of fixing the problem was high and the cost of the pollution was comparatively low, then taxes are the better route (to discourage production around the margin and pay for the costs to the damaged parties). If the costs to the public are higher than the private gains, then regulation and prohibition are preferable. Given the massive costs of the crisis (just look at how the periphery countries in Europe are being ground down so as to keep from exposing the insolvency of French and German banks, one of the results of the crisis, as well as the costs of the pump and dump housing game in America and the lousy employment market), it’s not hard to see that regulations are the right remedy as far as the financial services industry is concerned. So Warren’s and Barofsky’s successes aren’t special cases; they are the sort of outcomes you’d see regularly if we had regulators who didn’t see their stint as an employment agency for big ticket bank jobs (and don’t tell me people like that don’t exist; I can name two dozen capable people who have the right skills and mindset without thinking very hard. The issue is not the inability to find “talent”; it’s that the current political apparatus keeps them away from those positions).
It’s annoying to hear the simple-minded anti-regulatory trope getting so much play. But maybe that’s because a lot of Americans now know better and are seen to be in need of reeducation.
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I absolutely hate the “[all] regulation is bad” meme.
Regulation is nothing more or less than laws. Saying that all regulation is uniformly bad is the same as saying that all laws are uniformly bad, in principle – or any form of regulation, say Bible.
So, if most of those hating regulation are self-proclaimed deeply religious people, how do they look at ten commandments or various other regulations Bible contains (and there’s quite a few in there…). I guess consistency is a mark of a small mind…
There is bad regulation (and to be honest I’d say that most of the regulation we have is bad) – but then as with laws, it’s up to us to figure out which one is bad and how to improve it.
Whenever people act like the domination of a few companies in the business of disseminating popular culture is not a big deal, they purposefully ignore this point. Then we get stuck with various plutocrat propaganda as infinite truth. Government is inefficient and can’t do anything compared to the private sector. Regulation is bad for everyone except for common sense regulations, (which of course are never considered common sense regulations during the battles to implement them.) And so and so on
I hate seeing shows like The Simpsons and every single hollywood movie parrot these bogus ideological tropes, because most people take their entertainment unfiltered. And that’s how we end up with a majority of people just buying plute propaganda as if its old fashioned folk wisdom that cannot be not true.
Ever notice that the “all regulations are bad” crowd almost never wants to talk specifics?
So we never know if drinking water regulations are bad. Or if clean air regulations are bad. Or if air traffic control regulations are bad.
This is the old boogey man in the closet routine.
The stories fill you with terror and then when you gather your courage together and push open the closet door you find a dust bunny and two rusty hangers.
What say ye about buying Grover Norquist a one-way ticket to Somalia, his no-government Utopia where he will never in his life again be troubled by regulatory authorities?
But Grover only objects to taxes.
Errr… I thought Grover’s whole point was reducing taxes to destroy government? Which is one of the things that happened in Somalia (I think it was the other way around, but whatever…).Anyway, recent reports from Somalia (which don’t mention our drones or boots on the ground there) suggest that the government might be making a comeback. Even the warlords must find it cheaper to have a minimal central authority. Don’g try to explain that to Grover, though.
It has been often said in comments that Somalia is not a no-government utopia.
Would you consider Belgium a no-goverment utopia?
Regulations do not have to be mandated by government. Some of them are just common sense.
I consider the libertarian utopia a useful mental exercise. That’s all.
Or do you agree that we are well off as it is?
Huh? Belgium has a government. They may be having a hard time naming a Prime Minister, but that doesn’t mean they have no government. They have regulators, police and all other manner of government employees showing up for work every day. And don’t forget the EU bureaucracy.
My third sentence up here will most likely be greeted ranting, so, here’s another thought experience:
http://journal.plasticmind.com/world/verkeersbordvrij-europes-great-traffic-experiment/
http://www.csmonitor.com/World/Europe/2008/0912/p07s03-woeu.html
Let us not forget yves that ken Starr cost taxpayers $60 million just to find out the president ‘had relations with that woman’.
Now, which was a more valuable public service?
Impeachments are political (by any standard, Obama and Bush should be/should have been impeached, but no one will do that, it seems), and are not the same as regulations. Straw man.
For anyone who argues there should be simpler laws and no regulations (i.e., no regulators promulgating rules to interpret/apply those laws), remember the Maginot Line. There’s no end to the ways humans will try to game a system of static rules.
The NFL constantly updates its rulebook, for a game played by just a few hundred people. An economy of 300 million people can’t depend on the law/rule-making efforts of just a few hundred elected lawmakers, who in theory have to consider funding everything from funding missions to prevent asteroid strikes to defining civil rights to engaging/disengaging us in foreign entanglements.
Absolutely the NFL as an example of the value of rules(laws).
Remember the lockout of the refs (regulators) at the beginning of this NFL season? And what was the reaction of the fans? They went absolutely berserk (as did I) because of non-enforcement of rules, or inconsistent enforcement. The fans wound up angry because of a lack of FAIRNESS! We humans place a high value on fairness and on following the rules.
Management quickly ended the lock-out after the Seattle Seahawks game because the quality of the “regulators” was so visibly shabby and the disgust of the fans reached a crescendo. We even cheered the real”regulators” in the first game after they were brought back.
If rules/laws and their professional and proper enforcement are so damn important in a football “game”, why do some people think that real games like Finance and Banking should be done without rules/regulations — or have only a few rules enforced by “Replacement” Refs/Regulators.
Fairness is fundamentally important to us as a species. The seeming lack of it in our major institutions is probably the biggest reason for our growing lack of faith in them.
Now if we could only have the same degree of enthusiasm for fairness in our institutions that we have for our sports games.
Here’s a Michael Moore quote that sums it up quite neatly:
“I once heard the linguist and political writer Noam Chomsky say that if you want proof the American people aren’t stupid, just turn on any sports talk radio show and listen to the incredible retention of facts. It is amazing- and it’s proof that the American mind is alive and well. It just isn’t challenged with anything interesting or exciting.”
I think that is exactly true.ask a kid or even some grandmothers about a list of ball players and their stats and where they came from and what their records are and even who they are married to… and you get encyclopedic replies…. whereas, as people about the people who make the most important decisions effecting them and their posterity….and you get muddled facts,ignorance and misinformation..that is “good enough”…..GO figure!
Yves, sum up for us, as you see it, “the current political apparatus” that keeps the competent, honest talent away from those positions. You seem to be saying it’s more than just parking at a regulatory agency until a “real job” comes along.
I have a simple solution: revoke all corporate charters and limited liability partnerships. If you don’t like limited liability and you commit the crimes (poisoning the commons), you should do the time.
I recently read this book: http://www.amazon.com/Blood-Medicine-Blowing-Deadliest-Prescription/dp/0452298504
It is not a book I would typically read, so I am not prepared to discuss its literary merits but it did strike me as a book that would be very useful in a high school civics class (if they have such things). It tels you a lot about how government works (or doesn’t).
J&J’s Orthos Pharamceutical was 1)committing medicare fraud in the billing for Procrit, and 2)promoting off label use of Procrit.
The off label use was not just useless, it was actually deadly for those with certain kinds of tumnors. The drug acted as a growth factor for tumors and also led to blood clots.
Where was the FDA? Good question. This off label prescribing is the outgrowth of a weakened regulatory environment. The author makes the point in the book that the most fruitful period for drug development (fruitful as measured by creating useful drugs, not corporate profits) came about when the government got serious about regulating the pharmaceutical industry. To say that regulations hamper productivity is simply not true. How did autos make such strides in quality improvement– yes, there’s competition, but EPA and safety standards contributed a large part too.
The book is also useful for showing how a whistleblower suit plays out– Eric Holder is no hero of course.
One thing I really learned as someone who knows little about how the law actually works is that maybe the “rule of law” should be retermed “the rules of law”. The case seemed to turn on the most picayune detail, and the higher priced the lawyer the more deft they are at finding these picayune details. At least that’s the way it seemed to a layperson such as myself.
I realize that this comment does not deal with financial regulation, but there are a lot of parallels.
Banking utopia (self regulation) is based on free market mechanisms. Supply and Demand. Ha. Always remember Ann Pettifor, who explained that there is no free market in money (the monopoly of banking) so finance must be regulated because money by its very strange nature is created by the finance industry out of thin air – by somebody’s decision or judgement call to make a loan. Money does not operate within a self regulating market at all. Money is actually only defined by rules and regulations. That’s the only way money is given any meaning at all.
Funny how all regulations are bad – except for those regulationa preventing those dirty freaking hippies from smoking marijuana, or the regulations designed to make it impossible for abortion clinics to operate…
It seems as though the war on regulations is only claiming that regulations preventing the 0.1% from cheating the rest of us out of what remains of our savings are bad.