Is Regulation Really the Answer?

The events on Wall Street this week have proven a number of things about the state of the American economy: 1) the recession is going to get worse before it gets better, 2) the government will bail out greedy and careless corporations rather than let them totally collapse and cause more severe short-term damage to the economy, and 3) the general consensus is that Washington must be more proactive in regulating the problematic real estate and banking sectors.

But I wonder: is more rigorous regulation really going to solve the problem? Certainly there needs to be some regulation, but I’ve always been suspicious of the idea that government (in all of its complicated, corrupted interests) is more efficient and enabling than private enterprise.

Regulation by the American government has historically been a good idea during times of intense industrial change (as in Teddy Roosevelt’s Square Deal) or war (as in FDR’s New Deal), but in times of relative stability, de-regulation has been more effective for the economy (as in the Reagan 80s). It’s hard to tell where we are right now.

In general, I tend to think that regulation (and the political push for it… typically a liberal/progressive/Democrat concern) is founded in a flawed philosophy. Regulation assumes that people are ultimately too stupid or greedy to self-regulate. Like most liberal thinking, regulation is about entrusting the government with more power–on the premise that one centralized authority acting with some vague “national interest” in mind is more capable than a million mini-authorities with their own self interests (usually the pursuit of wealth and property).

It’s condescending, really. Are average citizens really too dumb to act in their own best interests? Maybe. I suppose the liberal perception is that too many Americans are ignorant and emotional on the level of Sarah Palin (the whipping girl for unprecedented levels of unleashed liberal hatred). Thus, it’s probably better to limit the personal agency of these hicks and give the power to the presumably smarter politicians in Washington.

The problem is this: self-interest is always a more effective motivator than collective interest. The fact is: we’re humans. Humans are flawed, selfish, and, above all, desperately preoccupied with our own safety and future. Though it is a higher, more virtuous, doutbtless more Christ-like ambition to put the community or collective first, it is unfortunately impractical that humans will, en masse, “come together” to serve the nation before they serve themselves. As it happens, they actually end up serving the collective better when they put their own self-interests first. Why? Because collectivism only works when everyone is on board, and regrettably our fallen world renders that scenario impossible.

If this were Eden and we were perfect, all of us would agree that the community took precedence over the individual, that regulation for the greater good was far more important than our own self interests. But then again, in such a world our self interests wouldn’t be so problematic.

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3 responses to “Is Regulation Really the Answer?

  1. Two things:

    1) de-regulation has been more effective for the economy (as in the Reagan 80s).

    Our current financial woes date back to the 80s, when the market decided that juggling debt is a better route to solvency than fiscal responsibility. The system has been built such that risks are rewarded and failures are status quo— and while the situation far exceeds liberal/conservative bounds (everyone is culpable), the Regan deregulation certainly didn’t help.

    2) Regulation assumes that people are ultimately too stupid or greedy to self-regulate.

    I disagree. Regulation assumes that self interest sometimes runs counter to collective interest. The current disaster on Wall Street is exactly indicative of this: The Fed has been trying to get other corporations to buy up failing corporations (such as Washington Mutual), because obviously that would be in the direct best interest of everyone involved: but no one wants to take that big of a hit, for obvious reasons, and thus either the company goes under (such as Lehman Brothers) or the Fed buys it out directly (such as AIG). No one likes the socialism implicit in the federal buyouts, but it’s better than the alternative, which would be failure of not only the US market but international markets as well. Doesn’t proactivity make sense in this scenario? Those who are against government meddling in the market in the form of regulations have ended up advocating for the current situation in which the government owns a good part of the market, which is more meddling than regulations advocates wanted.

  2. Wallstreet has rules, schools have rules, airline industry has rules… Having some rules saves the world from approaching anarchy.

  3. I tend to fall in line with F.A Hayek on this one, that planning or regulation should be planning for freedom not planning against it. So a trillion dollar bail out on AIG? Yikes I am not sure. I think that even if the short term losses of letting the company go under were minimal compared to the capital lost in saving this thing we still would be doing the same thing, because no politician wants to look that bad. I personally think we shouldn’t have bailed them out, but I guess we will just have to see how it goes.

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