Wednesday, June 24, 2009

Almost there

Thomas Frank, has done what many of might have considered impossible if we weren't there to witness it with our own eyes -- he has written an intelligent op-ed in the WSJ.  The best part is an excellent quote.

What the report leaves largely unaddressed, however, is the political problem.

It was not merely structural problems that led certain regulators to nap through the crisis. The people who filled regulatory jobs in the past administration were asleep at the switch because they were supposed to be. It was as though they had been hired for their extraordinary powers of drowsiness.

The reason for that is simple: There are powerful institutions that don't like being regulated. Regulation sometimes cuts into their profits and interferes with their business. So they have used the political process to sabotage, redirect, defund, undo or hijack the regulatory state since the regulatory state was first invented.

The first federal regulatory agency, the Interstate Commerce Commission, was set up to regulate railroad freight rates in the 1880s. Soon thereafter, Richard Olney, a prominent railroad lawyer, came to Washington to serve as Grover Cleveland's attorney general. Olney's former boss asked him if he would help kill off the hated ICC. Olney's reply, handed down at the very dawn of Big Government, should be regarded as an urtext of the regulatory state:

"The Commission . . . is, or can be made, of great use to the railroads. It satisfies the popular clamor for a government supervision of the railroads, at the same time that that supervision is almost entirely nominal. Further, the older such a commission gets to be, the more inclined it will be found to take the business and railroad view of things. . . . The part of wisdom is not to destroy the Commission, but to utilize it."

Business has come a long way since the days of the railroads, and they no longer need the politicians to point out to them that they can help protect an industry from competition and from public meddling.  In fact, with the invention of the too-big-too-fail finance and the military industrial complex, we invented a whole class of industry whose very business model is regulatory capture.  As a corollary, we now have a whole class of politicians that depend on this model for their political livelihood.  The two go together like hand in iron glove. 

Which makes you wonder why Frank stops where he does.  He goes on to question why Obama would think that tweaking around the organizational structure of regulation will have any effect if the problem is that regulators are captured.  He asks why we don't have clearer guidelines for regulators by which they can be judged.  All fine things to question.  But these avoid the more basic problem that the politicians who appoint the regulators and who judge them are also captured by industry.  At the risk of repeating myself, it doesn't matter what regulatory structure you put in place now if the next guy in office can take some campaing contributions in exchange for gutting it.  Under those conditions, every expansion of nominal 'regulation' will be just another even larger lever for corruption and anti-competitiveness.  So the fundamental problem is with how we choose our politicians, not with how we write our regulations 

You can't have big government without publicly funded elections, and if you had publicly funded elections it doesn't matter how big the government is.

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