Like many of us at CEI, it looks like my former boss Phil Gramm isn’t interested in helping anybody pretend that today’s financial crisis was caused by “deregulation.”
Money and credit in the U.S. have, of course, been tweaked, folded, sqeezed and re-tweaked by a central bank—the Federal Reserve—for almost a century. On top of that, if cable news and talk radio are any indication, few seem to be forgetting that the collapse is largely rooted in a failure of welfare-statism—the artificial stimulation of housing markets over and above what free markets could, in reality, sustain.
The article is called “A Deregulator Looks Back, Unswayed.” It’s written in the faint-praise mode, with references to childhood in Georgia offset with an air of condescension and looky-here come-uppance, with quotes by detractors conveying to the reader that, gee, successful deregulation efforts like Gramm-Leach-Bliley kinda backfired and were largely this guy’s fault. But, no. All capitalism is meant to do is help facilitate wealth creation among strangers; we still have a long way to go—especially now with the collapse of investment banking in America. Along with it’s evolution of wealth-creating instruments, the private sector must evolve disciplinary ones as well (See Friedrich Hayek’s New Confusion About Planning” sorry, no link–hit the library, folks!).
I don’t see a lot of heroes in the bailout effort, and think Gramm is one of the few who, given the “rescue” culture, can look over the horizon and chart a way out, a way toward the right kind of laissez faire and re-emergence of competitive instruments that discipline future financial markets far better than regulators can (for example, increase the private sector’s ability to discipline bad management by such means as “hostile” takeovers.) Such instuments are crucial, yet are dampened when replaced by regulation; it is precisely such competitive discipline that assures that in actual free markets, no business gets too big to fail.
In later posts I’ll discuss some of Gramm’s broader reform ideas like a “Regulatory Reduction Commission” that deserve play, especially in today’s environement when all the impulses are in the direction of regulatory expansion; our current path is destined to make the same mistakes all over again by growing government and in effect, making entities already artificially “too big to fail” even bigger. But the importance of periodic purges of general regulatory underbrush, and of and putting an expiration date of every new rule, can’t be overstated.
If only politicians were as brave in constraining the Bailout to Nowhere and this week’s Bailout on Wheels as Gramm was on the mid-90s effort to centralize the U.S. health care sector. He declared that nationalized health care would pass “Over my cold, dead political body.” His private-sector body is still very much alive.