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SubscribeOur economy faltered because of a speculative bubble. That’s what always happens. And “the others” always find some way to create one. The best you can hope for is to mitigate the effects. But when we turn soft on regulation, and when we pander to greed, we amplify the effects.
Have a look at our entire history of boom and bust. Look at it as a graph, one that looks like a radio signal. On the Gold Standard, the amplitude is totally out of control. Once the Federal Reserve is created, the level of catastrophe is reduced by orders of magnitude. That’s mainly the work of regulation, combined with a wary attitude toward greed.
Some politicians in the “So-Called Right” are telling you that regulation is Socialism, or Communism. In fact, it’s one of the basic pillars of Capitalism. These folks aren’t Republicans or Conservatives, they’re Corporatists, and Extreme at that. If you want to calculate the Center of the Curve, these folks are 3 deviations away from it.
Some politicians in the “So-Called Tea Party” want us to go back to the Gold Standard. These Corporatists are just plain off the curve.
We already voted a vast new set of financial reforms into place. We mostly solved this problem, for now until “the others” find the next loophole. Remember, even Republicans put no serious block to it; behind the scenes many contributed to it. The only question to ask is, why did they all vote against it? 
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Your comments about “the bubble” reminded me of when I was working at Hyperion… one day, the stock price started to climb. And it kept going and going and going. I had the pleasure of sitting at the same lunch table as the CEO where it was interesting to see that while all of the employees were just giddy about what their options were worth, Jim was cautious and concerned — because there was no explanation for the boom.
You can’t have an effect without a cause and the people who understand that best — the ones whose job it is to provide plausible explanations for how we got to where we are from wherever we started — aren’t they the ones who are most qualified to drive regulation as appropriate based on what really happened?
I believe there’s a stigma surrounding the word regulation and it’s often misinterpreted to mean big government. I blame Congress to a great degree for that because the process of regulating seems to me to be seriously flawed.
Regulation shouldn’t be about limiting what companies and organizations can do as much as it should be about holding them accountable for what they’ve done. I think we fail miserably on both sides of the house with respect to the latter.
I think the biggest problem I have is that other than elections, there is no litmus test for what Congress does. They pass laws that can have significant effects on our future, but neither the chambers nor agencies are ever required to to perform a retrospective — to look at the results between points a and b and to measure those results against what they were trying to accomplish.
We heard all about the financial reforms on the campaign trail… but will we we hear about it again in 9-12 months in the context of “did we solve the problem”? Or will we hear about it in the context of some campaign speech years from now where someone’s pointing the finger at someone else saying “where was the oversight”?
Years ago, they used to have a terrible time in D.C. with the road construction contractors not getting their equipment off the highways before rush hour started… so DOT was allowed to impose stiff penalties — something like $50,000 for every five minutes of unscheduled lane closures. I don’t think a week had gone by before one of the contractors had a violation and had to chalk up a huge chunk of change. To the best of my knowledge, that’s the only fine DOT ever collected because there were no further violations.
You can have regulation, but it has to be sensible and you can’t have regulation without oversight — but neither will be effective unless you also have a system of checks and balances to keep every one honest.
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It’s nearly impossible to regulate ahead of speculation. The problem is that the new speculation mechanism is still legal when they start using it. And there are no existing controls to dampen its effects. You can only react to speculation.
However, what you can do is react to it as quick as possible. And you can take a conservative rather than permissive approach to any rapid burst of growth, especially if it is limited to certain sectors.
It’s also dangerous to regulate after violations occur. As I said above, often today’s crimes weren’t crimes yesterday. They’ll say, “What we were doing was perfectly legal.” And our American Way does not allow us to punish crimes retroactively.
Plus, what if the violation is catastrophic? You don’t want to wait until after a nuclear plant explodes to fine the builder for it. You want to be proactive about the regulation.
But it’s certainly true that the most egregious failure is not punishing those who have clearly done wrong.
Any politician who is against regulation should not get our vote. In fact, I think any politician who says or does anything, inside or outside the public sphere, to dirty the Name of Regulation, should not get our vote.
In particular, we need our Executive Branch to understand the value of regulation.. They need to believe in it, act on it, and appoint individuals at every level who are qualified to do it right. So we need our Presidential Candidates to stand strong on this principal.
I think we also need more pay for more “regulators.” I am not talking about vast new swaths of big government. What I mean is, we need incentives that attract more and better talent from industry. All the smart guys in finance are making dough on Wall Street. Money is part of what will bring more of them over to our side, as people who help our government regulate. That’s just a free-market principal, and we shouldn’t think the operation of our government is exempt from it.
Part of this is suggesting that Congress needs to empower our regulators and set for them general principals, but not to advise them on execution. We probably need less involvement from Congress beyond a certain level of detail.
I’ll offer one more point, which is to beware what I call the Tory Argument. Often I hear people saying we can’t do this or that because corporations and the wealthy won’t invest, hire, or innovate like we want them to. If it’s truly bad for business, that’s one thing, that we can predict and calculate. But this sounds a little like the Tories saying they didn’t want to fight King George because if he won, he’d lop off their heads. Near as I can tell, we are still willing to die for our democratic freedoms. We need to take a similar unyielding stance for our economic freedoms. The Corporatists are not owed impossible profits and an ever-increasing share of our wealth simply because their grandfathers had a little gumption.
(I suspect we’ll fast get into the Land of Capital Gains Tax and Trickle-Down Economics. Let’s do that on a separate thread.)
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