What Does Regulation Regulate?

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Here’s one of the simple truisms that gets lost in the political (i.e., bumper sticker) discussions.

Don’t regulate the free markets! Don’t interfere with innovation! Don’t stifle incentives!

What bullshit.

One of the best ways to win a debate is to control the language used. This was one of the elements George Orwell was discussing in 1984, and why the language in the novel was degraded to phrases like “double plus good.” All nuance was dismissed. He who controls the language controls the political economy is what Orwell was saying. In modern times, its done not with boot-jacks and guns, but with catchphrases and clever marketing. Its not as heavy handed, its just more insidious.

When we discuss “Regulations,” we are talking about regulating human behavior. And that behavior can range from following misplaced incentives to falsifying accounting data to overtly legal but destructive actions — like putting people into loans they knew (or reasonably should have known) were likely to default.

What a terrible sham the no “regulation cry” has been. It is really a vote for no rules against illegal and/or criminal behavior . . .


Originally published at The Big Picture blog and reproduced here with the author’s permission.

4 Responses to "What Does Regulation Regulate?"

  1. Demand Side   December 22, 2008 at 12:11 pm

    Regulation should be aimed at structuring markets, where participants, prices and products are transparent and standardized. A financial products safety commission, such as proposed by Stiglitz and others, is one way

  2. Guest   December 22, 2008 at 4:21 pm

    Bailout the US Economy or bailout Wall Street Banksters?http://www.counterpunch.com/whitney12222008.htmlFrom Bernanke and Paulson’s perspective, any small gain by workers is regarded as “anti-free market” and tantamount to communism. The corporate mandarins would like to preserve the current antagonistic, labor-debasing system and keep workers one paycheck away from the homeless shelter. But it’s not good for the economy and it’s not good for the country. It just perpetuates the chasm between rich and poor, suggesting of a species irreconcilably divided into slave owner and chattel. The only way to overcome these differences is by narrowing the wealth gap and rewarding hard work with fair pay.Greenspan figured out how to strengthen the grip of the banking sector by creating asset bubbles. That was his contribution during the Clinton years. The leveraging of complex financial products and the surge in real estate prices gave the impression of prosperity, but it was all smoke and mirrors. The “wealth effect” vanished as soon as the interest payments on mortgages could no longer be paid. That’s when Maestro’s bubble blew up and Greenspan retired to write his memoirs.So far, world stock indexes have lost over $30 trillion and there will probably be another bloody leg-down in 2009. As the underlying economy contracts, there’s no need for a lumbering, oversized financial system. Institutions will have to be shut down and their assets will have to be sold at auction. That means prices will continue to fall, business activity will falter, and GDP will shrivel. The mismatch between output and falling demand presages a painful correction. When credit gets scarce, speculative investment can’t sufficiently lubricate the system, and a stampede for the exits begins. These are the real costs of asset bubbles; a quick descent into deflationary hell.The Fed and its Wall Street colleagues have reworked the economy in a way that diverts energy from productive activity to myriad credit-enhancing scams that create an inherently unstable financial system. Even now, with manufacturing in tatters, consumer spending at its nadir and factories hemorrhaging jobs at a Depression-era pace; Bernanke is still trying to keep the teetering banking giants propped up and out of Chapter 11. It’s a fool’s errand. The economy needs to fixed from the bottom-up not the top-down; that’s just throwing money down a rathole.

  3. Brett   December 23, 2008 at 2:35 am

    The problem with regulation is that many of the regulators want to eventually move on to a more lucrative career in the private sector. So, the regulators’ best interests to not rock the boat to hard.

  4. C   December 23, 2008 at 2:41 am

    Incisive and to the point. The sad thing is how easily manipulated the masses are by the catchphrases and marketing. Throw some religion in there and you’ve all but got mass mind control.