Free Market Myths and Regulatory Realities
Last week, the Consumer Financial Protection Bureau (CFPB) issued new rules to protect Americans from predatory banking practices as well as rules that make mortgage lenders offer those facing foreclosure more payment options. We applaud the efforts of the CFPB in taking important steps to protect Americans from another economic disaster.
The fight to regulate the financial industry, and those responsible for perpetrating the economic crisis in 2008, has, unfortunately, been an uphill battle. The Dodd-Frank bill was a piece of long-overdue and much needed legislation, yet two-thirds of its rules, like the Volcker rule which prevents banks from gambling with federally insured money, are stuck and have yet to be finished; regulators have missed over 100 deadlines to complete rules that are months overdue. Provisions that have passed have been struck down after Wall Street firms have filed suit against them.
That Wall Street opposes regulation is far from shocking. It is their rhetoric that’s interesting. Industry arguments against regulation, not just of the banks but of just about anything, usually boil down to an erroneous, yet apparently seductive logic: regulation is the product of an overactive, inefficient, bloated government bureaucracy that interferes with the private sector and distorts the miraculous, self-regulating harmony of the “free market”.
Throughout history, in fact, corporations and proponents of industry have taken it upon themselves to be the white knights of the free market who oppose any government intervention, at least when it’s on behalf of workers and consumers. Whether it’s fair labor standards, an eight-hour workday, seatbelts in cars, standards for carbon emissions, or any of the immensely popular social safety net programs, they whine about regulation and make the false claim that the additional standards will stymie economic growth. They hold the public hostage with threats of moving their industries offshore if rules aren’t stopped or rolled back. Their view is, where regulations are few, markets are free, and competition is fierce, the best outcomes are reached.
Except, of course, when the government steps in on the side of industry, in which case government intervention is just fine. This hypocrisy has been well documented by a variety of writers and journalists over the years. For one, there are all of the technologies, usually researched and developed at the Pentagon with public money, that are handed off to the private sector and turned into windfall profits (jet engines, fiber optics, GPS technology, and the Internet are some examples).
We might also consider the billions of taxpayer dollars that go to corporate welfare programs, policies that grant privileges to certain companies and industries in the form of tax breaks, exemptions, favorable regulation, and so forth. The most egregious example is the oil and gas industry, which between 1950 and 2007 received more than $450 billion in federal subsidies. In a report released last year, Tad DeHaven of the Cato Institute calculated, “Corporate welfare in the federal budget costs taxpayers almost $100 billion a year.”
The point is that when proponents of big businesses try to fly their Free Market flags to convince Americans that government is bad and regulation is a problem, we know the charge is disingenuous at best and manipulative at worst. We know that many in the business community have been more than willing to accept as much public assistance as they can get their hands on. If the corporate sector was actually concerned with adhering to free market principles, there would have been shrill cries of protest among industry titans against the government bailout of the banks that amounted to hundreds of billions of dollars. Yet, astonishingly, the only sound to be heard was the swoosh of government cash entering the coffers of Goldman Sachs, A.I.G., and J.P. Morgan Chase.
The truth is that what corporations want is not a reduction in the size of the government—just a redirection of its spending so they get a larger slice of the pie.
Given the persistence and ideological draw of the free market fantasy, and the staggering resources at the disposal of those who perpetuate it, it’s amazing that the public can score victories like the CFPB rules passed last week. What it proves, though, is that money is not the only thing that talks in politics; the voice of organized citizens can get through to policymakers in Washington and make the government work for its citizens. It remains for us to ensure that voice is heard loud and often.