Tag Archives: regulation

Anger at Wall Street Grows

Just a few links to articles showing how fed up folks are getting with Wall Street.

  • The NY Times with a column from a former corporate lawyer calling for a windfall profits tax on Goldman Sachs
  • Salon telling Wall Street to “just shut up” and advocating limits to lobbying by financial firms
  • A new regulatory manifesto by a fed up investment banker
  • And just for fun, an attack on private equity’s quest for capital gains tax treatment

It’s starting to look like enough people are fed up that something might happen. Of course, the financial industry has already spent $350 million this year on lobbying, setting a record, and we know that politicians listen to money more than they listen to voters.

The Government Does Not Want to Run Your Life

The Wall Street Journal recently ran an article on low-flow shower heads and all the cool ways that faucet makers are trying to make less water feel like more water (turbines, anyone?). The federal government first set rules on shower head throughput in 1992, due to various water shortages throughout the country. Of course, many people like their high-pressure showers, so these rules are not necessarily popular. Or, as Ft. Worth cardiologist Michael Vaughan put it, those who would limit water flow are “just more of the self-appointed police that are going to tell you what’s the right way to live.”

I’m afraid I have to disagree with Dr. Vaughn. If there are water shortages, then rules on water usage are not telling you how to live, but rather classic government intervention to make society work. Maybe Dr. Vaughn didn’t study the tragedy of the commons in medical school, but if he did he would know that sometimes a larger party needs to set rules to ensure that even rational-acting individuals don’t utterly deplete a common resource. And Ft. Worth is definitely a place that needs to be careful about water. The local water district notes that “drought conditions are a part of life here in North Texas” and a southwestern farm magazine says:

“The Texas Water Development Board reports that by 2050 the state’s population will double from its current 22 million. Even with fairly strict conservation efforts, demand for water will increase by 20 percent to 25 percent. But water supply likely will decrease by 17 percent.”

More broadly speaking, in this year of tea parties it seems like there are folks who want to call every form of government regulation a case of “the self-appointed police that are going to tell you what’s the right way to live.” But in fact, government regulation is an inherent part of living in society. Part of the social contract we all enter is that government will limit our ability to do things that harm society. Rousseau said that in the 1700’s, and it hasn’t changed. Even J.S. Mill, the father of liberty, said that you are not free to do things that harm other people. Using the last drop of water qualifies as harming other people.

I don’t claim that all government regulation is warranted. There are plenty of examples of overzealous bureaucrats or legislators pushing nanny-state sort of rules. But neither is every government rule an example of overreaching state control into the quotidian details of our daily life. Rules and regulations are part of civilization; in fact, one could argue that civilization is nothing BUT a web of rules and regulations. Part of the democratic process is the citizens using their vote to adjust the level of regulation, but they will never be able to vote away all regulation. Unless you want to retreat into the woods like Jeremiah Johnson, you’re going to face some government regulation.

As for Dr. Vaughn, I don’t hear him complaining about the government that built the pipes and pumps and keeps them going to send clean water to his faucet. He only wants to complain when government limits the water that IT PROVIDES. I would be willing to bet that he views himself as some sort of Howard Roark of medicine, a rugged individualist who makes big money because of his vast knowledge, ignoring that much of his income is from prescribing drugs that were likely developed with NIH funding. And as long as I’m piling on Dr. Vaughn, I should note that the government is not “the self-appointed police.” The government is the actual police, empowered by the people to act.

Niebuhr vs. The Free Market

The deeper I get into Moral Man and Immoral Society, the more I realize that Reinhold Niebuhr was tremendously prescient. Or, perhaps, the world just hasn’t changed in the 70 years since he wrote the book.

For example:

“Thus, for instance, a laissez faire economic theory is maintained in an industrial era through the ignorant believe that the general welfare is best served by placing the least possible political restraints upon economic activity. The history of the past hundred years is a refutation of the theory….The men in power in modern industry would not, of course, capitulate simply because the social philosophy by which they justify their policies had been discredited. “

And yet, since the Reagan presidency, we have seen nothing but deregulation and an emphasis on laissez faire economics. And even after the meltdown of the past two years, the Right is clinging more than ever to its free market mantra, following the siren song of Ayn Rand, letting the Howard Roarks of the world build their luxury highrises while the city crumbles around them (that was buildings as metaphors and as concrete examples (and THAT was using a word which is a component of buildings also as a descriptive (Thoughtbasket has layers, baby))).

Just yesterday the NY Times reported on how Congress is gutting the Sarbanes-Oxley bill, removing the post-Enron regulations that were meant to prevent corporate chicanery, succumbing to corporate and banking lobbyists at the expense of small investors. Were Niebuhr alive he would be knowingly, and sadly, shaking his head.

J.S. Mill and Financial Regulation

I was recently on vacation, which gave me a chance to reread John Stuart Mill’s On Liberty. This is a classic of the individual liberty movement, and I thought this might be an apt time to revisit it, what with the government nationalizing some financial institutions and making major investments in others, and almost certainly about to heavily reregulate the financial markets.

My expectation was that Mill would provide ammunition for those arguing against government involvement, but I was wrong. In fact, Mill clearly supports a government that is active in many affairs of its citizens, as long as there are definite and specific limits to that activity. As Mill says, “the fact of living in society renders it indispensable that each should be bound to observe a certain line of conduct toward the rest.” (p 70, all quotes from the Norton edition)

But let me take a step back. The money quote that summarizes all of On Liberty is this: “the only purpose for which power can be rightfully exercised over any member of a civilized community, against his will, is to prevent harm to others.” (p. 10) Mill’s basic position is that people should be allowed to do and say as they please, as long as they don’t harm anybody else. If left at this, Mill could easily be read to support a fully Libertarian position.

But Mill doesn’t leave it at that. Instead, he teases out a pretty broad definition of “harm,” and thereby a broad set of circumstances under which government can interfere in individual affairs. Continuing the quote from above, Mill notes “this conduct consists, first, in not injuring the interests of one another.” (p. 70) This sentence alone seems to support regulation of Wall Street, since virtually every trade has a counterparty whose interests are affected. Mill goes even further, claiming that the state can compel certain behavior from individuals: “to bear his fair share in the common defence, or in any other joint work necessary to the interest of the society of which he enjoys the protection.” (p. 12)

For Mill, the default position is to give people freedom, but he recognizes that a civil society involves so many interactions that the default may be infrequent, and thus there is significant warrant for government action. So while there are plenty of reasons to disagree with government policy on the financial bailout, John Stuart Mill is not one of them.