Regulation not the answerEven Alan Greenspan has said it.
By: Jay Ambrose, The Dickinson Press
Even Alan Greenspan has said it.
In congressional testimony, the conservative, capitalism-loving former chairman of the Federal Reserve confessed he had trusted too much to market mechanisms and too little to regulation in that job, and that this is among the reasons for the current financial crisis.
So maybe he will go to his grave considering his astonishing career a failure, but he shouldn’t. Few other economists spotted what was coming, either, which is another way of saying that any additional regulations of financial institutions would likely have missed the target to begin with.
This is almost always the way with regulations, some note — they mostly look over their shoulders at yesterday’s problems, failing to focus on the future for the simple reason that the future is always to some degree a great big guess.
Regulations have other negatives. They kill people. They are a burden on the economy. They are often ineffective. And as regards the economic mess we are in now, regulations were far more a cause than was their absence.
The thought that the tens of thousands of pages of federal, state and local business regulations might actually cost lives may seem incredible, but testimony to that effect comes from reputable social scientists at major universities and think tanks. One broad point is that money spent on them — often to little positive avail — is money that could make individuals and communities wealthier, healthier, safer and longer-living. There are a number of other, more specific assertions.
One, coming from the National Academy of Sciences as well as researchers at Harvard and Brookings Institution, is that there may have been 2,000 or more deaths a year because of federal rules requiring auto companies to produce cars using less gas. These standard put people in cars that were smaller and more dangerous in accidents than the larger cars many would otherwise have been driving.
It’s also been a constant cry from market enthusiasts that there is a cost of billions of dollars a year because of all the extra, expensive and frequently pointless requirements imposed on businesses and because of the way in which these rules and regulations stymie innovation and entrepreneurship.
Some regulations are needed, of course, but still may not always get the job done. Years ago, I learned as a reporter covering state government in New York that regulators can be captives of those they regulate, not because they are corrupt, but because they don’t know nearly as much about the industry as the people in it and must rely on their guidance.
The Wall Street Journal recently did a piece on how federal regulators looked eight times over the past 16 years at the operations of Barnard Madoff, now accused of a $50 trillion swindle. They found nothing, leading the columnist Steve Chapman to note that regulators, after all, are “fallible” and that intensely regulated European states landed in the same mess in the current financial crisis as we did.
And we got there at least in part as a result of regulations, such as those pushing banks to make mortgage loans to bad risks.
Some of the ideas for new regulations governing financial institutions may make sense, but you can bet that most of these organizations have learned their lesson and that their next major setback, if there is one, will be caused by something different from the kind of recklessness witnessed in the past.
What we should also keep in mind is that boom-and-bust panics are a small fraction of the story about an economic system that has produced untold good for this land of ours, not because it was well-guided by central authorities, but because it was largely free.
Greenspan may have made mistakes, but his basic faith was not misplaced.
— Ambrose, formerly Washington director of editorial policy for Scripps Howard newspapers and the editor of dailies in El Paso, Texas and Denver, is a columnist living in Colorado.