09.29.08

The Socialists are Wrong - Laissez-faire is not to blame

Posted in Politics and Issues at 6:49 am by Jeff

I read this morning that Nicholas Sarkozy, the president of France, has said that the age of “lassiez-faire” is over. This is becoming a clarion call of many who favor more government intervention in our economy. But the problems we are currently experiencing in our economy cannot be squarely blamed on a “lassiez-faire” approach. An abundance of regulation has not led to the demise of our economy, but neither has a lack of it been the root of the problem. Instead, the primary contributing factor has been misregulation. One or two bad regulations are enough to have far reaching consequences which eventually reverberate through the entire economy.

Our energy crisis has come about in large part due to an artificial reduction in supply springing from anti-production regulations in the energy sector. Politicians talk of “energy independence” but the trouble is that we have layer upon layer of rules and laws that prevent the extraction and production of oil and coal. It is simply cheaper to purchase our oil from nations that do not artificially diminish their supply of energy through such forms of regulation. Supply of fuel is also kept artificially low in our nation because he have come to a halt in terms of building new oil refineries. Simply speaking of “energy independence” solves nothing when we have laws on our books that prevent the market from deciding which form of energy is cheapest to extract, produce and distribute.

We have also stifled our supply of energy because misregulation has made it cost prohibitive to build any kind of new power plant. Politicians speak of clean energy solutions which the private sector should certainly be promoted and encouraged to develop and distribute. But in the mean time we are not taking proper advantage of proven methods of power generation such as clean-coal technology and, especially, nuclear power. Even if we ramped up production of these kinds of facilities, our power grid currently struggles to keep up with the growing demand of consumers. No matter the source of our power, if we do not have a working distribution network, even new clean energy technologies will not be able to provide power to the people who need it. Once again, misregulation has made it difficult to build out and maintain our power grid.

In the financial sector, our government has been forcing banks to take on subprime loans for years. The Community Reinvestment Act (CRA) needs greater exposure for the economic travesty it has wrought. We should not blame the institutions of Fannie and Freddie themselves, because it was our government that has continually misregulated these institutions by treating them as quasi-government agencies which have, in fact, been heavily regulated. The intention of providing housing to everyone is noble. But offering large amounts of credit to those who cannot afford it is simply unwise.

More regulations would not have solved this crisis, and simply having fewer regulations would not have done so either. But a few restrictive regulations in a couple of key industries have had disastrous consequences. And so here we are. The Left screams out for more government intervention, and the Right squeals that government needs to be more hands-off, but what we really need is more intelligent government that takes time to consider the consequences of a few misguided regulations.

I’m not holding my breath.

Fannie Mae Eases Credit To Aid Mortgage Lending
How A Clinton-Era Rule Rewrite Made Subprime Crisis Inevitable
Global Business Regulation

[Update]

Cafe Hayek agrees: Laissez Faire to Blame?

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