The Most Promising Lede of the Week
From funnyman economist/TV personality Ben Stein:
Earlier this month I was flying home to Los Angeles from the Republican National Convention in St. Paul, which I attended as a pundit, not a politician. Sitting next to me on the flight was a charming young man named Tom Morello. Ruthless questioning elicited the fact that he is the lead guitar for a fabulously successful band called Rage Against the Machine.
But instead of spinning this material into an Odd Couple-style comedy of manners, the former Nixon speechwriter (website here) uses it as an opportunity to probe the perennial, bipartisan, and futile crusade against Washington "waste, fraud and abuse," and then pivots in favor of federal regulation:
Then there is that aspect of the war against Washington in which candidates—very often, my fellow Republicans—rage against the machine of regulation. Indeed, this is a constant refrain of the conservatives I call my pals. Regulation is stifling growth and entrepreneurship, they say.
With respect, I don't see it. Look at the major debacles in the economy in the past quarter-century. The junk-bond scandal of the 1980s was largely a result of a failure of regulation. The tech boom of the 1990s and the subsequent bust were greatly facilitated by a lack of regulation over fiduciary behavior by underwriters and investment banks. The problem was not too much regulation, but far too little.
Or look at the current financial madness caused by wildly imprudent lending by major banks and investment banks. Basically, a major piece of deregulation, the Gramm-Leach-Bliley Act, overturned most of the laws that had kept commercial banks and investment banks separate. This made it much easier for monster-size banks to lay down enormous bets on the direction of housing prices.
I don't agree with Stein–for one thing, I'm not sure what special "regulation" was required for the dot-com bust of 2000, and the tech boom that both proceeded and succeeded it continues to be a wonderful thing indeed. Also, most entrepreneur-stifling regulations occur at the local, not federal, level, and they can stifle to the point of sending perfectly good people to jail.
But it's interesting to see the re-regulatory mindset at work. Somewhere, somehow, people were making money in new-sounding ways. When enough of them started to lose money, it's time to Do Something. That is a powerful urge in any season, and it sure seems to be gathering steam in 2008.
