Stop swinging the outrage pendulum

Robert Reich


Scott Jagow: Congress is looking at ways to discourage oil speculators. Opponents say there's no need to tinker with the free market. It's a classic battle between the forces of government and business. Commentator Robert Reich says every so often, one of them takes control of the other.

Robert Reich: The great pendulum of American economic outrage moves back and forth over time between anger at big government and anger at big business. For almost 30 years, big government has been the target -- starting with Ronald Reagan's admonition that government is the problem, not the solution, through Bill Clinton's declaration that the era of big government is over, and George W. Bush's hands-off brand of free market fundamentalism.

We deregulated much of the economy and pretty much allowed corporations to do what they wished. And for the first 20 years the result was largely good -- a buoyant economy, a bullish stock market, a strong dollar.

But now, we're experiencing what happens when the pendulum swings too far, and big business is given so much leeway that the public is harmed and the economy jeopardized. The corporate looting scandals that began with Enron were a wake-up call.

Then came the practice of post-dating executive stock options. And more recently, an epidemic of unsafe products -- drugs like Vioxx, tainted foods, heperin and lead-painted toys imported from China.

We've had defense contractors that don't deliver on their contracts, and insurance companies that won't deliver on their promises. And just this past year, the subprime loan mess, a financial meltdown on Wall Street, out-of-control hedge funds and derivatives. Perhaps manipulation of oil futures markets.

The reality is that neither big government nor big business is the problem. Both are necessary parts of a modern economy. Problems arise when they're out of balance -- as they were by the 1970's, when government had grown so large it was stifling the economy. Or as they have become this decade, as big business, including Wall Street, grew so irresponsible as to undermine public trust and threaten the economy.

Now, the pendulum of outrage is swinging back against large corporations. America is heading toward another era of regulation. The real question is how smartly we go about it, and whether we can keep the pendulum from swinging too far.

Jagow: Robert Reich teaches public policy at the University of California Berkeley.

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Capitalism is not pretty and there is no perfect balance. Understanding moving targets and deft regulatory actions are the only way to have a net positive effect. I have disagreed with Mr. Reich on many points but he is not far off the mark here.

Robert Reich has done us a great disservice by demonstrating absolutely no economic theory in his explanation. A mystical "pendulum" of forces is in effect? Instead of looking at the causes of big business corruption, he says it's just a pendulum of free markets that's culprit? Mr. Reich fails to even mention the Community Reinvestment Act that forced banks to give bad loans to uncredit worthy borrowers. He fails to look at the Federal Reserve's lowering of interest rates to 1% after 9/11 that led to extremely cheap credit and lots of risky, bad investments. It is these two factors together that caused the housing bust, not some fanstastic pendulum of business forces.

I think Mr. Reich has found the topic for his next book, The Perfect Balance. What is the perfect balance between free markets, and government regulation? What is the perfect balance between government responsibility, and pesonel responsibility? The important thing is that each time we go too far in one direction and suffer the consequences; that we learn from our mistakes, and try again. Unfortunately, I think we are going to learn a lot in the next five years.

Reich's view of the markets as a pendulum is the result of a mind abused by economic mythology.

You can't "go smartly" about government regulation of business. It is regulation and its dirty twin, favoritism - that often create "big business" and their abuses as listed above. Big businesses like regulation, in that it often curtails the starts and growth of small businesses that can pare the behomoths down to size, free market style.

Robert Reich seems to miss the fact that we Americans live neither in a true free market nor true socialism (as much as he seems wish the latter), but a funky limbo in between. We're taxed and regulated to our gills.

Markets are too complex to be regulated by anything other than buyers and sellers. No "smart" regulation of legislators and executives will ever help the people and businesses. Regulations favor the absurdly rich and entrenched, and violate sound economic principles.

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