Free Market Myth: Regulation is everywhere. Let’s choose who benefits. (Dean Baker)

[depakid]

Once again, a very insightful article from the eminent economist:

"The extraordinary financial collapse of recent months has been commonly described as a testament to the failure of deregulation. The events are indeed testament to a failure—a failure of public policy. Blaming deregulation is misleading.

In general, political debates over regulation have been wrongly cast as disputes over the extent of regulation, with conservatives assumed to prefer less regulation, while liberals prefer more. In fact conservatives do not necessarily desire less regulation, nor do liberals necessarily desire more. Conservatives support regulatory structures that cause income to flow upward, while liberals support regulatory structures that promote equality. “Less” regulation does not imply greater inequality, nor is the reverse true.

Framing regulation debates in terms of more and less is not only inaccurate; it hugely biases the argument toward conservative positions by characterizing an extremely intrusive structure of, for example, patent and copyright rules, as the free market. In the realm of insurance and finance over the last two decades, calls for deregulation have been cover for rules tilted starkly toward corporate interests. And the recent change in bankruptcy law, hailed by conservatives, requires much greater government involvement in the economy.

False ideological claims have circumscribed the public debate over regulation and blinded us to the wide range of choices we can make. Without these claims, what would guide regulatory policy? What kinds of choices would we have?"

MUCH MORE on drug patenting, the bankruptcy bill, BGH, Mad Cow and financial regulation: http://www.commondreams.org/view/2009/01/07-4

[kristopher]

1. Good article. K&R

[katusha]

2. Excellent article! Thank you for posting this depakid n/t

[lumberjack_jeff]

3. The quickest way to reduce medical costs is to reduce the length of patents to 10 years

It is currently 20. 10 years is plenty of time to capitalize on a patent.

[formercia]

4. A personal experience

I need Albuterol to survive. The inhaler I was using had a $10. co-pay. I can no longer buy it because the propellant is Freon, bad for the environment. My new and improved inhaler that is environmentally friendly has a co-pay of $32. and change.

Big Pharma smiles.

But, hell, it has a fancy dosage counter.

[robish518]

5. Great Point

There's too much focus on deregulation vs. regulation. People I'm in school with tend to think that Republicans are great because they'll deregulate all these restrictive policies that Democrats put on businesses. Both sides are for improvement of the economy, but one side seems to favor a model that creates a larger wealth gap. I tend to think theirs is a more radical approach to the economy. Seems to me the more conservative model would be to watch the whole system steadily grow without these huge leaps and bounds.

[Gregorian]

6. The love of money is the root of all evil.

Good article. It takes a lot of work and consciousness to decipher those who oppress us. I discovered one myself last night. It can be empowering.

[bemildred]

7. The "free market" is about as real as the Easter Bunny.

All markets are run by people who have a vested interest in them and the means and incentive to manipulate them. That's why you need the government to regulate them in the public interest.

[Puzzler]

8. Yes, excellent article

.

[Danascot]

9. For those who don't have time

to read the whole thing, this is the part that relates to regulations and the financial system:


… Let’s return to the financial crisis with this in mind. In the decades preceding the financial collapse, regulations designed to protect the public and to ensure the stability of the financial system were considerably weakened, but the system was (and is) quite far from being deregulated.

The key regulation that remained in place was the “too-big-to-fail” doctrine. Essentially, the banks and other financial institutions took enormous risks with an implicit guarantee that their creditors could count on the protection of the U.S. government if things went badly. For everyone except the creditors of Lehman Brothers and the preferred shareholders of Fannie Mae and Freddie Mac, this gamble proved correct.

This one-sided giveaway was not deregulation. Had those setting financial policy over the last three decades been committed to deregulation, they would have assured financial markets that financial institutions making bad investments would go out of business and that their creditors would be out of luck. The Federal Reserve Board and the Treasury would have warned that investors were acting at their own risk when they put money in Bear Stearns, AIG, and the rest.

In the context of a too-big-to-fail principle, the removal of restrictions on leverage (investment banks were allowed to leverage their capital at a ratio of forty-to-one compared to just ten-to-one for commercial banks) and the relaxation of other prudential regulation (the nominal value of credit default swaps, a new class of derivative instruments, grew to more than $70 trillion in a nearly unregulated market) essentially gave the banks a license to wager with taxpayers’ money.

Banks did exactly what economic theory predicts. They took huge risks, leveraging themselves to the hilt with questionable assets, knowing that they would gain as long as the housing bubble held up. And the banks did so with willing accomplices among pension funds, hedge funds, and other investors because these investors knew that the government would rescue them if things went badly.

Deregulation can be a principled position held by true believers in a free market. But Wall Streeters all wanted one-sided regulation that provided them with an enormous government security blanket without any costs or conditions. None of the Citigroup, Goldman Sachs, J.P. Morgan crew ever went to lobby Congress for an explicit repeal of the too-big-to-fail doctrine. And while many on Wall Street lost their jobs when the bubble burst, the tens or hundreds of millions of dollars that banking executives earned during the good times are theirs to keep. Even with the market collapse, the vast majority of them are almost certainly better off than they would have been had they done honest work over the last decade.