Steve Fischmann
Politicians on the right tell us that cutting government spending, ending the “nanny” state and reducing taxes are the keys to righting all of our economic woes. From the left we are told that stimulus spending, funding major social programs, and raising taxes on the rich is the road to job creation and fixing the economy.
Washington wages war over the budget and the theatre is riveting as politicians play Russian roulette with our future by putting U.S. credit worthiness at risk.
We’re so transfixed by this iconic battle between left and right that we seem to have forgotten what precipitated our current economic woes in the first place. It wasn’t lazy welfare cheats, and it wasn’t ridiculously generous tax breaks to the wealthy – though neither helped. It was lack of commonsense regulation in the financial markets.
Banks, mortgage companies and financiers were like impatient Friday-afternoon commuters itching to get home, only they were in a hurry to boost profits. Regulators in the Clinton and Bush administrations were only too happy to turn off the traffic lights that kept the markets safe. Fancy new financial instruments like derivatives were exempted from normal transparency and reporting requirements, minimum capital requirements eroded, fraudulent packaging of junk mortgages as “safe” investments went unchecked, and historically miniscule tax rates on investments encouraged reckless speculation.
With most of the traffic lights turned off, the inevitable crash finally hit.
A depressingly familiar story
The force was so stunning that lifelong free-market advocate and former Federal Reserve Chairman Alan Greenspan now admits that his policy of eliminating financial regulations was wrong. Over the last three decades the story has become depressingly familiar. Reasonable regulation is gradually removed under withering pressure from corporate interests. Government abdicates its basic responsibility for protecting the general welfare and economic chaos ensues. Examples abound.
Utility deregulation triggered a meltdown in California in 2002 and 2003. Electricity prices tripled, fake electricity shortages and unnecessary rolling blackouts followed. The state was left holding the bag for $15 billion with uncounted economic damage in the private sector.
The Savings and Loan Crisis of the 80s was also the result of ill-advised deregulation. Savings and Loans invested in wildly risky ventures knowing that the government had their backs. As savings institution after savings institution went bust, taxpayers came to the rescue with hundreds of billions in bailout funds to protect depositors.
Ask Gulf Coast fisherman, resort operators and restaurateurs how lax oil drilling regulation impacted their economy.
Smart regulation is not the bogeyman
Regulation is a dirty word in some political circles. It is the bogyman that symbolizes big wasteful government and the erosion of individual freedom. Whenever an economic downturn occurs, it is the scapegoat accused of impeding business. No one seems to remember – until there is a disaster – that we wouldn’t feel safe driving on that road without traffic laws, or boarding that plane without air traffic controllers, or eating at that restaurant without periodic health inspections. Radio, TV and the Internet would be unusable without regulatory protocols.
Without commonsense regulation the economy would grind to a halt, and our freedom to benefit from modern commerce would disappear.
Smart regulation is not the bogeyman. Red tape and tortuous rules are. And contrary to what the most vocal critics would have you believe, many of the most complicated regulatory structures are not created by government “bureaucrats,” but by the same large businesses that do the most griping about them. From my seat in the New Mexico Senate, I see frequently see corporate interests nit-pick straightforward regulatory proposals until they become unwieldy knots only their own corporate legal staffs have the resources to untie.
Far from hindering big corporations, the bizarre results often benefit special business interests at the expense of the public. How else do you explain laws that require consumers to pay for an electric utility’s theoretical loss of future business when energy efficiency measures are implemented? Or how about the laws that allow giant genetic seed manufacturers to sue farmers for patent infringement when patented seed accidentally blows onto their land from a neighboring farm? Most everyone is aware of the law that forbids Medicare from negotiating for lower prescription drug costs from drug producers.
These are the kinds of commerce-killing regulations we should unwind, not the ones that protect consumer’s wallets or the public’s health and safety.
Keeping our eyes on the prize
There are clear lessons to take from all this. Budgetary policy is not the primary cure for creating jobs and righting our economy. The regulatory environment can have a far bigger impact on our future. Streamlining regulation is necessary and beneficial, and we can start by eliminating duplicate programs and responsibilities that occur throughout government.
But strengthening the core regulatory structure underpinning our economy is even more critical. Various corporate interests are only too happy to see attention diverted to ideological budget battles so they can work behind the scenes to twist regulation towards their ends. We already see it happening in efforts to defund financial regulatory agencies and eviscerate newly legislated financial regulations.
We need to keep our eye on the prize. Investor and consumer protections are also our primary economic protections. Let’s not let them slip away.
Fischmann, a Democrat, is the state senator representing District 37 in the Las Cruces area.