Privilage in regulation
After many weeks, Occupy Wall Street and its kindred demonstrations around the country are still a source of headline controversy - even aside from the police manhandling of protesters. And yet the disparate coalition of discontent with contemporary America has not coalesced around a single set of aims. Unfortunately, the loudest voices call for more government management of the economy, when it is precisely that which got us into the mess we have yet to dig out from.
The protesters don't seem to understand that the great meltdown which began in 2008 grew out of joint management of the finance and housing industries by several government agencies - including the Federal Reserve System - and the captains of those industries themselves. Contrary to popular misconception, this was no case of rampant deregulation, but rather one of rampant regulatory privilege .. Avoiding the debacle would have required not only actual deregulation but also, and crucially, "de-privilegization." Every device to protect banks from their own folly - from deposit insurance to implicit guarantees to the Fed's promise of emergency cash injections - has contributed to the misery that sent the protesters into the street.
Oddly, Wall Street's critics give little attention to the constellation of privileges that were championed by housing and finance for years. Instead, they believe that justice lies in more vigorous government regulation. The problems here are that regulatory agencies invariably end up serving the regulated industries, which sometimes write their own rules, and that even regulators with the best of intentions can't know what they would need to know to serve the public's true interest. So they are bound to do more harm than good.
The protesters need to understand that a free economy is not an unregulated economy - far from it. Market forces, when not impeded by politicians and bureaucrats serving special interests - are the toughest regulators, punishing firms that waste resources, destroy value, and fail to serve consumers.
In other words, the authors and administrators of the Dodd-Frank financial-regulation regime are the enemies, not the friends, of justice for the 99 percent. Who will be in a better position to participate in the rule writing: the average person or the head of a big bank? Demanding more power for government is equivalent to demanding more privileges for Wall Street. When will the protesters realize that?
Another source of confusion hangs over Occupy Wall Street, and it comes from many critics of the protests. It is a sad spectacle to see self-styled advocates of the free market come to Wall Street's defense, as though it were the natural product of spontaneous market forces rather than a creature of the corporate-state partnership that has characterized the American economy for generations.
When people who claim to favor free markets rally to Wall Street's defense, seemingly oblivious to the poisonous corporatist partnership, they harm the cause of freedom by encouraging the protesters to conflate freedom with probusiness statism. Free-marketers should not be protecting Wall Street from criticism; rather they should be educating the protest movement about the true nature of the problem.
How can Occupy Wall Street activists be taught that their real adversary is the corporate state, not free markets, if defenders of Wall Street talk as though we have free markets today? (That message is subtle, but it's coming through just the same.)
Part of Occupy Wall Street's complaints concerns income inequality, specifically the growing gap between the top 1 percent of income earners and everyone else. Income statistics are tricky, and much is hidden by the fact that people move to and from the various income levels all the time. Moreover, the influx of poor immigrants can depress the median income even though no one is worse off. Nevertheless, it is true that a few people in banking and housing made and held onto fabulous fortunes thanks to government - that is, taxpayer - help.
In other words, America's skewed income configuration cannot have been the result of purely free exchange. Yet many advocates of a free market respond defensively to any criticism of income inequality as though it is their cherished system of natural liberty that is under assault. But we have had no such system, and free marketers set back the cause whenever they imply otherwise.
Sheldon Richman is senior fellow at The Future of Freedom Foundation.