Die Wohltemperierte Schreibmaschine

I’m not exactly sure why anyone outside of those pseudo-philosophical Ayn Rand-readers gets caught up in the fraud that deregulating American industries is good for anyone outside of the people who run those industries, but the myth came back at the end of March as Treasury Secretary Timothy Geithner testified before Congress. Now, I don’t know much about Geithner outside of his role as Treasury Secretary, but his presentation of the Obama plan for regulating the financial industry was met with a layer of doubt and skepticism that barely concealed the ideological belief that businesses should be left alone to solve their own problems.

Part of the Obama plan as presented by Geithner makes it possible for the government to seize large financial institutions on the edge of collapse, prompting John Boehner R-O.H. to respond “[this represents] an unprecedented grab of power,” even though, as reported by Media Matters, republicans have put forward a strikingly similar plan.

In fact, party colors came out early in Geithner’s presentation with “small government” republicans coming out against any new regulations that limited the freedoms of our financial industry. One fair criticism was voiced by Rep. Scott Garrett, R-N.J., who said “Forgive me if I am a skeptic … when I hear that if we only have a systemic regulator it will never happen again.” While Garrett does have a point, it’s also easy to blame regulators for their failures after regulatory bodies have been systemically dismantled and underfunded for years, a process known as “starving the beast.”

It’s worth addressing the argument, which usually goes that government intervention in business’s problems is unnecessary because workers won’t work if not paid enough, customers won’t buy from companies that engage in egregious behavior, and investors won’t reward risky and dangerous positions. In other words, the market would be better at regulating itself so it should be left alone.

Now that even Alan Greenspan has partially recanted this attitude, we can take a look at some examples of the market’s miserable failures at regulating itself in order to reveal this absurd belief for what it is.

First, consider food production. A number of good examples on this are present in Fast Food Nation, probably the most disturbing coming from Eric Schlosser’s chapter “What’s in the Meat.” Schlosser writes that even though the National Academy of Sciences warned in the 80s that our country’s meat inspection programs are outdated, “The Regan and Bush administrations… staffed the U.S. Department of Agriculture with officials far more interested in government deregulation than in food safety,” and as a result,

The USDA became largely indistinguishable from the industries it was meant to police. President Reagan’s first secretary of agriculture was in the hog business… And his choice to run the USDA’s Food Marketing and Inspection Service was vice president of the National Cattleman’s Association. (206)

In 1988 Reagan’s friends in the USDA launched the Streamlined Inspection System for Cattle, which was little more than a reduction in the staff and services dedicated at the USDA to inspecting meat. No wonder then, that when the USDA tested meat nationwide ten years later, they found 78.6 percent of it contained microbes spread primarily by fecal matter, which Schlosser famously interprets in short form: “there is shit in the meat” (197).

Another example of deregulation gone horribly wrong comes to us most poignantly here in California under the name Enron. This is the company that pushed for the deregulation of energy markets and then systematically inflated energy prices so they could make more money in energy markets than they made actually producing energy. The results of these schemes are well-known, with California suffering energy shortages, investors losing millions, and energy traders caught on tape joking about how much money they’d stolen from “those poor grandmothers in California.”

Finally, our recent financial meltdown is tied to the 90s’ deregulation of the financial products which allowed unsavory bankers to begin selling things like credit default swaps. Alan Greenspan admitted as much before Congress,stating “Those of us who have looked to the self-interest of lending institutions to protect shareholders’ equity, myself included, are in a state of shocked disbelief.” Whatever his understanding of financial institutions and economics, Greenspan’s statement is stunning for its naivety.

At the time of Greenspan’s admission Henry Waxman, R-CA, pressed him on his deregulatory past:

“Were you wrong?” Mr. Waxman asked.

“Partially,” the former Fed chairman reluctantly answered, before trying to parse his concession as thinly as possible.

Of course he was wrong. The idea that markets entirely through their own self-interest can regulate themselves is totally absurd. Their only interest is profit. Furthermore, being wrong here has had catastrophic results.

On the one hand, one might argue that these in all of these examples a minority engaged in distasteful behavior and that the majority shouldn’t be regulated for the minority’s greed. While the first part may be true we do have a long history of legislating against behavior that only a minority would ever consider (violent crime, for instance). Beyond that very general point, it’s also true that the current system has incentives built in for anyone willing to screw consumers and citizens for profit, and the Enron example is evidence of this.

Next, I’m sure the free market types will try to point out a few tattered examples of how the market has regulated itself without help from the government. Here’s an example: San Diego once had the largest tuna-fishing industry in the country before it collapsed due to overfishing and as such I’ve met a few tuna fishermen. In the eighties and nineties there was a big public outcry from consumers over the dolphins who were making it into tuna fishing nets and dying in the process. As such there was a huge push for “dolphin-safe tuna”, and this was touted as a success by consumer political advocates. However, according to what one former tuna fisherman told me, this resulted in a new policy whereby, “every time we saw any dolphins from the boats, we shot them with a shotgun. They called that ‘dolphin-safe’ because none of them ended up in our nets!”

In Fast Food Nation, Schlosser offers another example wherein McDonald’s ceased using polystyrene containers after pressure from environmental groups. This was a legitimate success, but was overshadowed by the many terrible practices the company continues to engage in as outlined in the book. Consumer politics, therefore, can momentarily change corporate culture but problematically offers no long-term incentive for change and doesn’t restrict new and more destructive policies in the future.

Thus, in the absence of a system that forces ethical responsibility on corporate stakeholders, we need a government who would be our ally against organizations that exceed their scope. This is why our leaders should be looking for ways to regulate businesses instead of perpetuating the myth that they’d be better off left alone.

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