Prospects are not looking too peachy for Democrats this election season. President Barack Obama (left) and Democrats in Congress are getting tarred by the nation's entrenched unemployment and the cost of efforts to reverse the damage. I can understand the malaise that afflicts a nation with close to 15 million people unemployed and millions more underemployed. But the blame is being put in the wrong place. The next election should be a contest over which economic worldview — laissez-faire or Keynesian — turned out to be the better one, and, on that score, the Democrats should win. Deregulation got America into this mess — decades of it — the kind of laissez-faire economics enacted by the Chamber of Commerce, former Federal Reserve Board Chairman Alan Greenspan and Republican leaders. America barely survived life under their tie-regulators'-hands approach to markets. Wall Street sucked up the wealth in this country, hollowing out our productive sectors, while bankers got drunk on risk. It was only after $17 trillion in American household wealth was wiped out in 18 months that Greenspan acknowledged how bankrupt his views were. – Pocono Record
Dominant Social Theme: America needs to reregulate.
Free-Market Analysis: This opinion piece appearing in the American Pocono Record is a great representation of a certain kind of elite dominant social theme: "The marketplace is flawed and government regulatory authority is a necessary corrective, in ever-larger doses if necessary." Now we are not accusing Ms. Blumner of being in cahoots with elite forces. In fact, the article reads quite sincerely, which is in fact more than a little troublesome. It represents a substantive sociopolitical philosophy that is part of the atmosphere at the moment.
Deregulation did not create the mess that America is in. One has to travel backwards in time to figure out where this argument comes from. Start before the Civil-War. America was a mostly agrarian country. There were big cities, sure, but even Manhattan was mostly farmland. Post Civil-War America was far more metropolitan and generally focused on bigger entities. It was increasingly federal rather than municipal. Stock exchanges consolidated in New York; banks did as well. After 1913 the American economy changed drastically. It became far more industrial and far less agrarian.
The combination of the mercantilist Federal Reserve with its debt-based money and the graduated income tax passed at the same time inflicted grievous wounds on the US Republic. Money went from gold and silver to inflatable paper currency. And what wasn't to be inflated away was eventually taxed at ever-higher rates. People went from self-sufficiency to something else. Dependent on central-bank initiated economic surges, people, even the middle and lower-middle classes, began to look for government help during the significant busts that occurred in between. In this sense, mercantilist fractional banking (essentially fiat banking) was the precursor of the welfare state.
Couple this with the Supreme Court's view that corporations are persons and various eviscerations of the Constitution that gave the federal government enormously increased powers and supported more direct voter participation and the American exception gradually subsided. America had been born a republic, but during the 20th century it in many ways began to resemble the European system that its founders had detested. What was lacking of course was a full-scale regulatory state of the kind that Germany had begun to assemble in the 19th century, aped by Britain. This lacunae began to be addressed in the 20th century as the federal congress became more and more active.
Today, of course, the United States is synonymous with regulatory enterprise and has in fact plumbed its lower depths considerably. It seems to us something of a race to the very bottom at this point, with both Europe and China competing with the United States to regulate as Europe did recently, such things as whether or not eggs can be sold by the dozen.
Much has changed in the United States. But to maintain that America needs to reregulate to regain a sound financial footing is to ignore the basis for America's initial industrial success, which was firmly rooted in the free-market. While it is true that fiat-money (regular floods of paper money) can stimulate economies inordinately, the downside of such a system lies in its inevitable economic distortion.
Every few years another boom tempts people away from solid, useful employment into something much less certain. The system encourages speculation and professional rootlessness. The system also crashes regularly, giving rise to claims that private enterprise is flawed and must be regulated. In fact, there is a symbiotic relationship between central banking and the regulatory state, with one supporting the other. It is no coincidence that regulation became far more pervasive in the 20th century, which was also an era of increased central banking.
More and more people have little idea of what it was like to live in an unregulated environment. Both the United States and China are converging on similar systems, each from its own direction. But the result is an unstated dominant social theme that regulation is a necessary part of modern governance. This can certainly be seen in the mainstream media's perspective that the fall of Glass-Steagal was in part responsible for the current financial crisis. Other regulations – or lack thereof – have been cited as well.
The idea that the US Congress, and to a lesser extent other political entities throughout the West could have taken regulatory action to ameliorate the current economic crisis is a kind of elite promotion in our view. Regulation can make things worse but we have a hard time understanding how such governmental action can make life better.
Every regulation in fact is a price fix, creating a queue or some other kind of scarcity or inconvenience – some merely irksome and some life-threatening. Logically, regulation cannot address the ills of modern society. Only an aggressive decoupling of the state itself from the marketplace can do that. Restrain the Invisible Hand, as regulation does, and it ceases to lift us up.