Regulators, Mount Up!

More Power to the Fed

The new regulatory proposal introduced by President Barack Obama and Treasury Secretary Tim Geithner includes giving substantially more power to the Federal Reserve. As the Wall Street Journal states, “The central bank would win power to monitor risks across the financial system, and sweeping authority to examine any firm that could threaten financial stability, even if the Fed wouldn’t normally supervise the institution.”

Well that’s just dandy; give the Fed the power to do pretty much anything it wants to any firm it feels might be doing poorly. This is central economic planning folks. And furthermore, one would pretty much have to be a blind, state-worshiping d-bag to not realize the Fed played a major role in the financial crisis. But as it goes, the government is spectacular at rewarding failure and punishing success. So I guess this is, unfortunately, no surprise. Regardless of the absurdity, the more important question is, as Judge Andrew Napolitano asks, “who will regulate the Federal Reserve?” Apparently no one.

Don’t Bother Regulating Fannie or Freddie
Also noteworthy in the new regulations is that neither Fannie Mae nor Freddie Mac are included in them! As Tim Geinther puts it:

“We considered a full range of options and decided that now is the time to pursue the essential reforms. Those that address the core causes of the current crisis, and that will help to prevent or contain future crises.”

Well at least that means there may be some oversight on the way, but how on earth can anyone think that Fannie and Freddie weren’t “core causes of the current crisis.” I guess if that same someone was the Treasury Secretary of the most powerful nation on the planet and also didn’t know how to pay his own taxes, such a mistake would make sense.

More Useless Terminology

Finally, there are certainly thousands of useless terms in today’s political jargon I could have dismantled in my two part series on the subject, that I just couldn’t get to (Part 1 and Part 2), however, I really should have taken on the term, “laissez-faire capitalism.” I have heard over and over again that our current financial crisis has shown that laissez-faire capitalism has failed. As Nouriel Roubini put it:

“…[the financial crisis] has shown the failure of a particular model of capitalism. Namely, the laissez-faire, unregulated (or aggressively deregulated), Wild West model of free market capitalism with lack of prudential regulation, supervision of financial markets and proper provision of public goods by governments.”

OK Nouriel, what do you mean by laissez-faire capitalism? Laissez-faire is French for “to let do” or “leave alone.” So we could imply that it means the government does not interfere in the economy at all, it leaves it alone. Some go this far, say anarcho-capitalists, who claim that laissez-faire means no government at all. Objectivists (followers of Ayn Rand) claim it means the government collects no money from its citizens through coercion (i.e. taxation). These are a bit extreme, though. And while there’s really no settled definition of laissez-faire capitalism, a good rule of thumb is that for a nation to be laissez-faire, government spending must be less than 10% of GDP. There is not a single major, industrial country in which this is the current state of affairs. As of 2008, the United States government spent over 37% of GDP. It will be 45.2% in 2009. Furthermore, back in our non-laissez-faire period, say 1968, government spending as a percent of GDP was only 30.5%. So in many ways we’ve gotten less laissez-faire. Regardless, how is this laissez-faire? How is this being “left alone?”

Finally, it’s not just government spending, government regulation is the antithesis of laizzes-faire capitalism, yet, as economist, Tom Dilorenzo points out:

“…we have 15 cabinet departments devoted to regulating different aspects of the economy. There are over 100 federal regulatory agencies. There are 73,000 pages of regulations in the federal register. And not to mention state and local governments that have hundreds and hundreds more regulatory agencies that regulate everything from zoning to anti-trust, to everything else.”

Thus, it becomes clear that the United States does not have anything that even resembles a laissez-faire, capitalist economy. So can we dispense with that term please? Thanks.