The latest issue of First Things includes interesting observations from Michael Novak about the impact of the current economic crisis on the future of ?democratic capitalism.? (Subscribers can access the article here. It?s titled ?An Apology for Democratic Capitalism.?)
Among Novak?s more astute observations is his response to the notion that deregulation deserves much of the blame for our current economic woes.
In the case of the mortgage crisis, Democrats blame the Bush administration?s commitment to deregulation. Yet the facts do not bear them out. It was the Democrats who blocked the regulation of Fannie Mae and Freddie Mac, and the Republicans insisted that the regulation of these two government-sponsored enterprises was essential.
Most emphatically, regulation that establishes rules without biasing outcomes (like the rules for football or baseball) is necessary for the common good. But regulation that grants undue powers to the government, puts the bureaucrat?s thumb on one side of the scales, or weakens the balance of power between one competitive actor and another is unjust. More, it?s damaging to the economy.
Then, too, regulation that places the government in the position of being easily bribed or influenced by one party is dangerous for the liberties and rights of citizens. All those who argue that lobbyists are the source of corruption are overlooking the role of government in accruing unchecked powers of favoritism. When government has the ability to place its heavy finger on one side of the scales, it invites massive lobbying by all involved. Lobbies wax and wane in proportion to the unchecked powers the government ? particularly through the staff-level writers and enforcers of rules ? claims for itself.
Out of this aggrandizement is fashioned the famous ?iron triangle? of government regulation. Lobbyists and interest groups stir up public opinion demanding action this way or that; the legislators bend to the winds of this pressure; the congressional committees and their friends in the bureaucracy write the immensely detailed and arcane rules that, with little oversight, put legislation into practice. Thus does the behemoth of government bureaucracy suffocate economic creativity, competition, and the invention of new products and new industries that lead to prosperity.
For more Locker Room discussion of economic regulation, click here, here, or here.
