Economic Terrorism
Business & Media Institute

Why Regulation Uber Alles is Just Plain Stupid
Paul F. Stifflemire, Jr.

Robert Kuttner, (Economic Viewpoint, October 13) about as knee jerk a lefty as exists today, recently opined that the New York Stock Exchange is “disgraced by…scandal” and “desperately trying to salvage its regulatory authority.” He called the compensation package (mostly, as it turns out, retirement savings accumulated over a 30 year career) of former NYSE chairman Richard Grasso “enormous” and “unwarranted” and evidence that the “collapse of self regulation is complete.”

Kuttner believes, and would like us to agree, that “it’s time for the SEC to resume direct authority over stock exchanges.” After all, Kuttner says, capitalism should be directed “by Congress.” Oh, now there’s a great idea.

Kuttner’s just full of them. Actually, he’s full of it, and has a penchant for misreading not just current events, but most of the history with which he claims familiarity. One can encounter first hand Kuttner’s philosophy and agenda by perusing The American Prospect magazine, or reading his book “Everything for Sale”—but I’d advise keeping a barf bag handy while doing either. Kuttner is one of those people who gain brief notoriety during thankfully brief periods of widespread perception of corporate scandal and economic duress. His kind surface from time to time explaining to the rest of us why capitalism stinks, is about to collapse, and requires a good, strong dose of government to set it aright. He skulked about during August’s blackout, blaming—of course—deregulation. Throughout history’s genuine crises, true demagogues, rather than amateurs like Kuttner have foisted real government on societies that have then paid the price exacted by the backward march of totalitarianism. We seem to have forgotten.

Kuttner would like us to believe that scandal is something new; the product of, you guessed it, rampant deregulation all around us. Set aside for the moment the unsurprising fact that there has been no real deregulation, only the perception of it; still, one would have to be truly ignorant to believe that so-called “corporate crime” began in the 1980s. But Kuttner has no problem stating exactly that. “There was no savings and loan meltdown before the 1980s” because S&Ls were tightly regulated. There couldn’t be an Enron until the 1990s because electricity was regulated until then, he says. Kuttner makes the unbelievably obtuse statement that the 1960s and 1970s were free of “big scandals” because “conflicts of interest were precluded by government rules.” Wow. It never occurs to the likes of Kuttner that it is exactly regulation which enables economic disaster by artificially constraining economic freedom. That is, however, another story.

I have to wonder whether Kuttner is as old as he looks, because any adult conscious during the 60s and 70s could hardly have missed any number of scandals and failures that were as wrenching at the time as any of this era. The bankruptcies of the W.T. Grant Company and Penn Central Railroad and the 1975 bond default of the Urban Development Corporation of New York State were rather spectacular failures that shook public confidence in the 1970s. Then there was the Equity Funding Corporation of America fraud that began with “creative accounting” in 1964 and ended with real convictions and hard jail time in 1975 for 21 employees. General Electric and Westinghouse were rather famously guilty of price fixing in the 1960s and again in the 1970s. And there were the scandals regarding 1960s NIH funded research and its very real abuse of human rights. Of course, the mother of all scandals—the Vietnam War—had, along with the kind of liberalism practiced by Kuttner, the 1960s as its formative years. To my knowledge the drumbeat for nationalizing just about every industry that encounters difficulty has been with us since at least the 19th Century. Somehow, liberals like Kuttner are convinced, despite all historical evidence that government can be counted on to operate with problem free expertise when regulating private sector activity. I would welcome his explanation for the need of constant vigilance when it comes to trusting government officials to do the right thing at their day job. After all, we have the War Powers Act, Campaign Finance Reform, and government employees are apparently so dishonest that we can’t trust them to own a single share of stock of any company in any industry they may encounter in the normal course of business.

Yet Kuttner asks us to trust the SEC in what would amount to a takeover of the NYSE. Personally I prefer to remain suspicious and skeptical that those operating the NYSE might just be human beings and subject to self interest. That as opposed to the delusion that Congress can write a perfect set of rules and the SEC will then enforce them precluding ever after any need for personal responsibility on the part of investors.

But here’s the real bulletin: Criminal activity is conducted by dishonest people who, for some reason only they and their psychoanalysts know for sure, feel no compunction to play by the rules. This is not to say that those who have been running the NYSE since 1979 have been criminal in the least. Kuttner and the rule writers think driving should be done while looking in the rear view mirror. The severity of the financial dislocations at the end of the real decade of greed—the 1990s—was owing in large part to the misperception that because the SEC and the DOJ and all the other regulator cops were on the beat, therefore everything consisted precisely of what met the eye. Naïve investors, sure they needn’t pay attention, found out too late that what goes up really can go down.

Turning over complete control of financial markets to the SEC will no more repeal that fact than gravity. But it most certainly will make markets less efficient and cost us all dearly in the long run.
 

Paul Stifflemire is the Director of the Business & Media Institute at the Media Research Center, 325 South Patrick Street, Alexandria, Virginia 22314