Owning Our Messes

Two years after giant Wall Street banks brought the global economy to the brink of meltdown, we are again witnessing the logical ends of anti-regulatory market fundamentalism. This time we are watching helplessly at thousands of barrels of oil pour into the Gulf of Mexico each day. In the June 3, 2010 issue of Bloomberg BusinessWeek, Paul M. Barrett does a masterly job of discussing the connection between these two cataclysmic events. The upshot is that we have been hearing for decades from our leaders that industry and markets are to be trusted in ways that our government is not, because government doesn't work. This idea has led us to relinquish oversight of industry to the supposedly superior forces of the market, which led quite predictably to the situation in which we now find ourselves.

The logical flaw behind the story of the effectiveness of unfettered markets is so obvious that one wonders how we fell for this story in the first place. The fiduciary responsibility of a corporation is to its shareholders, not the common good. Markets exist to serve corporations and investors (again shareholders), not the common good. The anti-regulatory fundamentalists claim that this doesn't matter, because corporations and markets will act in their own long term interests, which are supposedly aligned with the common good.

However, people across our great land frequently and regularly act against their long term interest for short term gratification (e.g. running up large amounts of credit card debt). Why should we be surprised when corporate leaders do the same, often encouraged by their shareholders? The idea that markets can govern themselves is as specious as the idea of drivers in a city being able to get to where they're going more quickly and safely without any traffic rules or regulations.

The goal facing us now is threefold. First, we must articulate clearly the case for intelligent regulation. Such regulation should be as lightweight as possible, and should seek to align corporate and market incentives with the public good. Second, we must push our leaders to act deliberately and decisively to enact meaningful regulatory measures. The third challenge is longer term: we must articulate in ways that resonate with the public the fact that government is more trustworthy than corporate interests because it is accountable to the public via the political process. Of course this brings up issues regarding the elements that distort our political process, but I'll save those for a later post.

Let's get to work!