Rules to prevent financial fraud or toxic dumping or faulty medical devices — these don’t destroy the free market. They make the free market work better. — President Obama, State of the Union Address, 1/24/12
Over the past year, discussion over regulations has frequently been distortedly one-sided, as if their only possible effect on the economy and markets is to cause damage. The Obama administration itself has often failed to add balance to this conversation, so it was heartening to see the president lay out a more comprehensive assessment in his State of the Union address.
In the address, President Obama focused most on the financial crisis and regulations. He, appropriately, stated that the roots of the economic collapse and ongoing economic troubles included regulatory inadequacy: “In 2008, the house of cards collapsed. We learned that mortgages had been sold to people who couldn’t afford or understand them. Banks had made huge bets and bonuses with other people’s money. Regulators had looked the other way, or didn’t have the authority to stop the bad behavior.”
So the effective implementation of strong financial regulations can not only provide needed protections to individual borrowers and savers, they can also abet financial stability, in all these ways making the free market “work better.”
A fuller version of the President’s claim would also include the following reasons why regulations can help the free market work better and help the economy.
President Obama made a strong stab at outlining a progressive narrative last night that envisions a nation where “everybody plays by the same rules.” It’s a pretty simple idea, tapping the powerful American ideal of egalitarianism — that all of us should get a “fair shot” and that nobody is too high and mighty to not be held responsible for their actions.
Of course, the obstacles to realizing this vision are enormous, particularly when it comes to ensuring equal accountability before the law. The rich are able to get away with misdeeds because their wealth enables them to block or water down rules aimed at curbing such behavior and can also be used to hire armies of lawyers and lobbyists when the authorities do come after them.
The U.S. is not nearly as bad as, say, Russia in this regard, but we are far, far away from a society where everyone is held equally responsible for their actions. And, ironically, we have moved further from that ideal over the past two decades during the same period when many politicians have trumpeted “personal responsibility” at every turn. That concept, it turns out, has been mainly applied to poor people and especially African-Americans — not to rich people who actually have fewer excuses for being irresponsible. Indeed, many of the same conservative politicians who have been most obsessed with “personal responsibility” have helped to make it easier for the rich and corporations to do whatever they please without fear of sanctions. Witness the rollback of rules governing Wall Street or the weakening of labor laws that protect workers from abusive employers or the hollowing out of the IRS’s enforcement capacity.
So it was nice, last night, to hear President Obama call for steps to ensure accountability for all.