Wednesday, May 26, 2010

Myths Die Hard: Can Conservatism Survive the Death of the Self-Regulating Market?


Fishermen, sportsmen and environmentalists are not the only people depressed by what has been happening along the Louisiana coast for the past month. This still evolving economic and environmental catastrophe is going to radically alter the politics in this country because when the final accounting of the BP Gulf Gusher is written, it will have killed more than people (as dear and as important as those 11 workers were to their friends and families), more than birds and fish, and, possibly, industries.

It will have also killed a myth that is at the core of modern conservatism — the myth of the self-regulating marketplace.

The myth was on its last legs before the disaster. The near-death experience of the financial system involving securitized debt obligations, credit default swaps, and pumped up ratings from credit agencies nearly hurled us into a global depression. We're still not out of the woods, but we have not fallen into the abyss.

Wall Street stalwart Goldman Sachs was revealed to have sold products to one set of clients that it was helping other clients bet against. It set up a 'heads we win, tails you lose' scenario that undermined what little credibility the financial community had left in the wake of the Bernard Madoff and Alan Stanford ponzi schemes — and those are merely the largest and best known of a large crop of financial scammers that thrived in the last financial regulatory environment that persisted even after the Enron scandals earlier in this decade.

Toyota — a company that built its brand on quality — sold millions of auto mobiles that had potential runaway acceleration issues, kept it secret from costumers and regulators, and only fessed up after the evidence was too big to deny.

Coalminers for Massey Energy died in one of the largest mine disasters in a quarter of a century and it was revealed that the company had been fighting (successfully) for years to stave off fines for safety violations while keeping the mines operating with unsafe conditions.

Then, of course, there is the energy industry (symbolized today by BP) that had the run of the Department of the Interior during the Bush/Cheney years. The corruption of that department is best illustrated by the way the industry treated the Mineral Management Service as a captive arm of the industry as a direct result of strategy driven by Vice President Dick Cheney to retain a facade of a regulatory structure while waging war on the ability of the Department of the Interior, the EPA and others to provide the kind of regulatory oversight that people expected but Cheney, his fellow conservatives, and the industry detested.

The catastrophe taking place in the Gulf of Mexico and in our coastal marshes and along our shore is the emphatic real world result and consequence of what the ideological struggle so-called free market conservatives have been fighting to achieve for decades. They wanted government off the back of industry. Conservatives didn't get all of what they wanted but it was clearly closer that we, as a society interested in its survival, can any longer afford to allow them to come.
 What these recent disasters have demonstrated is that corporations cannot be left to their own devices to deal with the operation of their individual businesses or their industries. In today's rabid economic environment where the only sacred trust has been how to "maximize shareholder value" things like safety, protection of the environment, the public interest get crammed down the totem of corporate priorities until they just don't matter.

Hard Learned Lessons Unlearned

Previous generations of Americans learned the lessons that this generation is learning now. Specifically, the lesson is that only government can protect the public's well-being in an economic system where profits is king.

The lesson was learned during the excesses of the Guilded Age — an era in the late 19th Century where political leaders were reluctant to get the federal government involved in the operation of the national economy. Coming out of that era which included the creation of monopolies and great wealth along with a the wider distribution of great poverty, the Progressive Movement pressed a series of economic reforms that sought to regulate the economy but also improve product safety in the U.S. It is not possible to describe the complexity of the effort in a blog, but here's a passage that does a pretty good job of it:
By the turn of the century, a middle class had developed that was leery of both the business elite and the radical political movements of farmers and laborers in the Midwest and West. Known as Progressives, these people favored government regulation of business practices to ensure competition and free enterprise. Congress enacted a law regulating railroads in 1887 (the Interstate Commerce Act), and one preventing large firms from controlling a single industry in 1890 (the Sherman Antitrust Act). These laws were not rigorously enforced, however, until the years between 1900 and 1920, when Republican President Theodore Roosevelt (1901–1909), Democratic President Woodrow Wilson (1913–1921), and others sympathetic to the views of the Progressives came to power. Many of today's U.S. regulatory agencies were created during these years, including the Interstate Commerce Commission and the Federal Trade Commission. Muckrakers were journalists who encouraged readers to demand more regulation of business. Upton Sinclair's The Jungle (1906) showed America the horrors of the Chicago Union Stock Yards, a giant complex of meat processing that developed in the 1870s. The federal government responded to Sinclair's book with the new regulatory Food and Drug Administration. Ida M. Tarbell wrote a series of articles against the Standard Oil monopoly. This affected both the government and the public reformers. The series helped pave the way for the breakup of the monopoly.
Teddy Roosevelt, for particular scorn. At the heart of the "free market" conservative world view is the belief that the Progressive Era marks a wrong turn in America's development.

This is the era when government intervention in the economy was made legitimate. The accomplishments of this era form the foundation upon which other regulatory efforts were built, particularly the Environmental Protection Agency (EPA) and the Occupational Safety and Health Administration (OSHA).

The problem conservatives have with the Progressive Era is that it was this period that established in American law and custom the idea that the public's interest existed and that this interest could override the narrower financial and economic interests of business and individuals. It marked the point in America's development as a nation that conservatives have fought for almost a century now to erase.
The Great Depression drove the lesson of the Progressive Era home anew. Franklin Roosevelt's New Deal was predicated on the assumption that there is a public interest that trumps economic and financial interests. Neither Theodore nor Franklin Roosevelt were against capitalism. They just recognized that in order for that system to be preserved, the harsher workings of that system would have to be reined in.

It took almost 60 years for the core protections of the New Deal to begin to be eroded. A critical financial reform, the Glass-Steagall Act set up fire walls within banks and financial institutions to ensure that the financial stability of these companies could not be undermined if one segment of the business got roughed up. In 1999 the Act was repealed (Bill Clinton signed the repeal into law) and the basis for the financial funny business that has devastated the retirement plans and pensions of so many people over the past two years was in place. The rules were antiquated, proponents of repeal said. The regulations were not needed any more. The markets are so much more efficient now. Well, the certainly proved to be efficient at wiping out hard-earned wealth.

Fruits of Dick Cheney

When regulators don't regulate, the public suffers. We see the dramatic results today on our coast. But there are other, less obvious ways that regulators viewing industry as their clients negatively affects the public.

Take the Centers for Disease Control and Prevention (CDC) as an example. The CDC is the nation's leading public health agency. One of its responsibilities is to protect the public health from harmful things that might get into the air, water and food.

According to congressional investigators, the CDC in the Bush/Cheney era was not particularly vigilant in the pursuit of its duties:
The Centers for Disease Control and Prevention made "scientifically indefensible" claims in 2004 that high lead in the water was not causing noticeable harm to the health of city residents. As terrified District parents demanded explanations for the spike in lead in their water, the CDC hurriedly published its calming analysis, knowing that it relied on incomplete, misleading blood-test results that played down the potential health impact, the investigation found.

The city utility says lead levels have been in the safe range in D.C. water since 2006, after a chemical change to reduce lead leaching. But the House report raises concerns about children in 9,100 residences throughout the city with partial lead-pipe replacements. Their parents may not know CDC research has found that children in such homes are four times as likely to have elevated lead in their blood.

Rather than working to protect any particular industry, the CDC apparently suppressed the lead data so as not cause a flareup of a fight the Bush/Cheney administration had waged (on behalf of industry) not to tighten permissible lead levels in drinking water. Whatever the reason, the health and well being of thousands of DC residents was adversely affected by the CDC's refusal to act as an honest regulator in this incident.

It Is About the Size of Government

When groups like the Americans for Tax Reform, Americans for Prosperity, the Club for Growth, and others argue for shrinking the size of government, what they are actually calling for is for business to be allowed a free hand in the conduct of their business.

These small government advocates want smaller government, they want less regulation, they want to leave the public at the mercy of the financial interests of corporations. They want us to ignore history, to unlearn lessons that previous generations have learned.

Until recently, they were having a pretty good run.

But, the excesses generated by the very success conservatives have had in loosening regulation have brought us again to the verge of a generational understanding of the need for regulation and restraint of the excesses of business.

A case can be made that government must be large and powerful in order to properly carry out its regulatory functions. Clearly what conservatives have been pursuing is an attempt to create an imbalance whereby business and industry would be too much larger than government for government to effectively regulate it.

At its core, this is what free market, small government conservatism is about — tipping the scales in such a way that regulation is present in form but not in substance, to give the public the illusion of protection when it does not in fact exist. This perfectly sums up the approach that Dick Cheney took in his role in running the apparatus of government during his tenure as — hollowing out the ability to regulate while leaving the facade of agencies in place. This is what Bobby Jindal, who served in the Bush administration, is trying to do in Louisiana.

What Now?

With their core economic beliefs discredited across a broad swath of the economy — finance, energy, insurance, public health — the question now becomes this: is there a future for free-market conservatism in this country?

There is an entire generation of young politicians who have bet their careers on this ideology, ranging from Bobby Jindal to Tim Pawlenty to Eric Cantor to Sarah Palin. In Louisiana, Jindal can probably get away with this for a while because the state Legislature is littered with people who bought this myth hook, line and sinker. Viewed in this light, the resistance to privatizing state mental health hospitals must have surprised Jindal and his staff.

But, Jindal's approach to government is based on the crony-capitalist branch of free-market capitalism. That branch maintains that while it might be too much to hope to dismantle government, conservatives can champion privatization and direct significant financial resources to the owners of companies that will take up the work formerly done by public employees. The only results Jindal and others of his ilk are interested in come in the form of funneling the money to corporations. The quality of the services delivered does not enter the equation.

This explains why such a strong fight against privatization of mental health services has emerged in the Legislature this year. As one lawmaker said, he hadn't heard a word about the quality of services cross the lips of any of the representatives from DHH or the Division of Administration when they were advocating the privatizing of these state hospitals.

That's because the quality of services is not an area of concern for this ideologically driven bunch. It is privatization for the sake of privatization. It is shrinking government for the sake of shrinking government. It is giving the private sector greater control of the resources of the state, including a hand (or two) in the stream of tax dollars.

Gulf Gusher as Game Changer

We are always a bit out of sync with the rest of the country here in Louisiana. However, with the BP Gulf Gusher changing our state and our world on a daily basis, it is hard to see how the Louisiana Association of Business and Industry (LABI) and others will be able to maintain their deregulation mantras and be taken seriously.

Myths die hard. But, the death of the myth of self-regulating markets could knock the scales from our eyes in Louisiana and make us recognize once again that government has an essential role to play and that role is to position itself as a shield to protect the citizens of our state against the excesses of business and industry.

If that happened, it would be a seismic political shift in Louisiana where the Department of Natural Resources has viewed itself as an enabler of the destruction of our wetlands, where the Department of Environmental Quality has seen its role as providing legitimacy for the continued pollution of our air and water, and where the energy industry has had carte blanche to do whatever it wanted in our state so long as the tax revenue and political contributions continued to flow.

"Facts are stubborn things," Ronald Reagan liked to say (frequently while ignoring them). Facts in the nation and in Louisiana have fundamentally changed. A prominent myth that has served as the foundation for a sizable portion of our politics has died. Repercussions are sure to follow.

4 comments:

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Landman of the Apocalypse said...

When the marketplace is unregulated, everybody's business becomes nobody's business. That is why we have government. That is why business must be regulated.

Mike Stagg said...

Agreed. Apparently, this is not a viewpoint shared by the Tea Party and other conservatives.

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