Three and a half years ago, America was plunged into an economic tragedy by the misdeeds of a woefully underregulated financial sector. You might think this episode would have slowed efforts to depict the United States as a nation that subjects businesses to endless and misguided edicts. It did not. After a few weeks’ respite, the Chamber of Commerce, the Heritage Foundation, the Business Roundtable et al., along with virtually the whole GOP, returned to the old war cry. They are at it still, ignoring the lessons of the financial meltdown and the fresher memories of America’s worst mine disaster in four decades and most horrific oil spill ever.
You have to give these people points for staying on script. And their persistence, over decades now, has taken a toll—not just in old rules repealed, new rules blocked, and oversight budgets and authority slashed but in the way the regulatory function of government is perceived, even by many who seek to uphold it.
In Washington that job falls largely to a valiant band of progressive advocates and public officials. They tend to proceed one case at a time, since regulation, like government in general, polls better when broken into its component parts. Yet in the process of showing that this or that rule won’t be as expensive as lobbyists say, and that the health, safety or environmental payoffs will more than justify the cost, the defense team often inadvertently reinforces the prosecution’s view of regulation as an economic burden to be borne for the sake of a noneconomic gain.
In fact, the regulation of American business, despite its inevitable excesses and far more significant shortcomings, has been prodigiously good for us economically, quite aside from its other benefits. And you don’t need higher math or heavy-duty cost-benefit analysis to grasp that truth. It’s a lesson that leaps off the pages of modern American history.
Take financial regulation. Not the labyrinthine Dodd-Frank law, with all its lobbyist-driven twists and turns. I’m talking about the body of rules adopted in the 1930s after the last big financial meltdown. New Deal financial reform, beginning with the Glass-Steagall and Securities Acts of 1933 and the Securities Exchange Act of 1934, rested on a few clear ideas, including leverage limits, disclosure requirements, deposit insurance and the emphatic separation of government-guaranteed banking activities from unguaranteed trading and securities activities.
Those principles gave Americans a long respite from the financial panics that had been regular and devastating events since before the Civil War. For nearly half a century, until the deregulation orgy of the 1980s and ’90s, we had a stable financial economy—one that (unlike today’s highflying megabanks and megafunds) was generally viewed as an instrument of the real economy.
Finance, more than other fields, calls for restraints on the “natural liberty of a few individuals” in order to protect “the security of the whole society,” Adam Smith argued. His reasoning may help explain why the era of strong financial regulation in America coincided with our greatest and most evenly shared gains in prosperity. And yet, the forces responsible for the extraordinary success of that regulatory regime have often produced good results in other sectors of the economy.