We saw a perfect example of the phenomenon on Morning Joe today. First in a clip from Tim Geithner, then in live comments by two pundits, all agreed that smarter regulation is our salvation.
There are only a few little problems with that theory . . .
We first saw a clip of Treasury Secretary Tim Geithner on last night’s Charlie Rose assuring us that excesses and bad practices will in part be cleaned out by “better regulation and oversight, better rules of the game.”
A bit later, WaPo editorial writer Jonathan Capehart assured us that the ills of Reagan-Thatcherite free market capitalism can be repaired by regulation done “smarter and more wisely.”
John Heilemann of New York magazine gave a more nuanced take, but he too sung the praises of “smart regulation.” Even Joe Scarborough, the show’s resident free-market fan, spoke in favor of more Wall Street regulation. But he also provided a perfect example of why this won’t work.
JOE SCARBOROUGH: There’s another side of it . . . When they passed Sarbanes-Oxley I thought: that’s great! More regulation on Wall Street, Americans won’t be hurt. I supported Sarbanes-Oxley. And then I was told for the next five years by Republicans and Democrats alike that that was killing New York, that was killing jobs on Wall Street, and it moved the financial center of the world to London.
The old law of unintended consequences at work. The congressmen who supported Sarbanes-Oxley surely thought at the time that it was very “smart.” But somehow, people believe that next time around we’ll do things “smarter and better” than then? Why? Has some collagen for the brain been invented that will give Nancy Pelosi and Harry Reid the cerebral equivalent of Angelina Jolie’s lips?
And when it comes to being smart, isn’t it universally acknowledged that Tim Geithner is the world’s smartest man? So smart that we had to look the other way on his personal tax peccadilloes? But wait a second: wasn’t Geithner partly responsible for the current mess? Wasn’t he already President of the New York Fed? Wasn’t he a key architect of the Citigroup bailout?
Sorry, Charlie. There’s no reason to think that tomorrow’s regulations will be any smarter than the ones that got us into this mess. Instead of basing policy on the naive, nay, absurd notion that people and regulations will get smarter, we should get back to eternal truth: when permitted to do so, markets work smarter than politicians.
This crisis was caused not by too little government involvement in the market but too much. Want to curb market excesses? Get government out and let institutions be held more financially responsible for their bad decisions. Make a bad lending decision? Don’t expect a Freddie or Fannie to be there to buy your paper. And don’t have laws like the Community Reinvestment Act that push financial institutions into making bad loans. Let markets be markets. Now that would be . . . smart.
