In today’s New York Times, Paul Krugman argues that St. Ronald started the financial deregulation ball rolling that left us vulnerable to the current economic crisis.
The immediate effect of Garn-St. Germain, as I said, was to turn the thrifts from a problem into a catastrophe. The S.& L. crisis has been written out of the Reagan hagiography, but the fact is that deregulation in effect gave the industry — whose deposits were federally insured — a license to gamble with taxpayers’ money, at best, or simply to loot it, at worst. By the time the government closed the books on the affair, taxpayers had lost $130 billion, back when that was a lot of money.
But there was also a longer-term effect. Reagan-era legislative changes essentially ended New Deal restrictions on mortgage lending — restrictions that, in particular, limited the ability of families to buy homes without putting a significant amount of money down.
The deregulation led to an explosion of debt, public and private. Essentially, I think, we’ve been mining the economy for the past quarter century instead of growing it. Now we’re left with the economic equivalent of a Superfund site.
To be a little bit fair, I’m not sure if continuing to grow the economy was a viable option as the rest of the world began to catch up to us. But, by mining the economy instead of conserving it, we’ve probably multiplied the resulting problems. Guess we’ll see.
If anyone’s interested, here’s a rebuttal to Krugman: http://lewrockwell.com/anderson/anderson251.html
Thanks for the link. I don’t think it addresses what I’m most curious about, though. The rebuttal, as I read it, says a) things kind of sucked economically in the late 70s/early 80s; and b) liberals wanted deregulation and easy credit too.
I’m curious as to whether the steep increase in debt was a net-positive or net-negative policy choice for the “average American.” (Not sure how best to define that – but I’m thinking someone of moderate earning capacity.) Did we avoid unnecessary suffering or merely delay and increase it?
In any event, today’s reforms are almost inevitably tomorrow’s corruption; so I’m not inclined to judge past decisions too harshly. But, I’m o.k. with tamping down the nostalgia for the good old days and curbing the hagiography of past leaders.
Originally, deregulation was just a tool that would sometimes be useful in appropriate circumstances. And this was often good – I think that airline regulation in the 80’s was a good thing.
However, at some point deregulation became more like a religious mantra that – proponents claimed – was always good. In fact, you ended up with a manichean “regulation bad/ deregulation good” system that helped lead us to our current dire situation because it made all regulations suspect. Not because of their effects, specifically, but simply because they were regulations.
Deregulation should be treated like any other tool. Sometimes a hammer is exactly what you need for a job. Sometimes it makes matters worse. It’s important to know which is which.
Actually, deregulation IS always good.
What’s NOT always good is the counter-regulation that too often is dishonestly passed off as deregulation.
While not agreeing with your central point, I like to refer to the action described in your second sentence as “re-regulation.”
That was actually my first choice…
Underregulation of derivatives has been pretty awesome.