An argument for smart financial and economic regulation
I offered this piece to Surface Earth on Saturday, July 21, 2012. The solutions then are the solutions now. Most important it is not whether we change our policies and reconstruct our economic protocols…it is how. So far…as we enter the era of President Elect Donald Trump’s nascent administration, indicators are that those who looked to him for relief and change will be disappointed.
In those still moments of reflection we all enjoy imaging the quintessential living space that brings a smile to our lips; for many of us its hot summer nights sitting on a foot tapping porch. The night air is still with only the remnants of warm aromas of home cooking lingering in the air. In our memories are the small towns where the air rang with the rhythmic pats on foot tapping porches. To music accompanied by the harmonic twanging cords of “Salty Dog”. Soft breezes disturb the still heat that contain the smells of honey suckle. This conjures up long forgotten recollections of small towns called Mayberry that contained a Sheriff named Andy Taylor.
The fictional Mayberry R.F.D symbolizes a way of life where the simplicities of common sense economics companioned our daily lives, adding an elusive assurance that all was right.
It was the era of the 1950’s and 1960’s where Andy Griffith helped millions of us to understand that the simplicity of that life was vital and real. It was where a single dirt road led to the house of miserly Ben Weaver the fictional town’s only real estate baron and department store owner. Even Mayberry’s troublemaker Ernest T. Bass held a vital function in maintaining the delicate small rural town economic balance, in the selling and marketing of his moonshine.
When joining the savings club you got a new toaster for your trouble. The banker was your neighbor, realtor, and insurance agent, never your money broker or high finance investment advisor. The passing of Andy Griffith last week was emblematic of the death of a simpler monetary system. Andy Griffith was part of that down home Christian value system. The strong brilliant thread wove tight the fabric that cloaked our dreams. It was during this time that University of Chicago Economic Professor, Nobel Prize winner and Washington policy advisor Milton Freidman was teaching the concepts of the evils of creeping socialism.
Ernest T’s moonshine business was an example of unfettered capitalism. The government agents stalking him in the hills and woods of North Carolina was an early sign of encroaching government imposed socialism, the strangling hold of government regulation on “hooch”. Mayberry was a simplification of the economists’ model and illustration detailed by Adam Smith in his “Invisible Hand “. This concept framed much of what Mr. Friedman embraced. Let commerce reign free of regulations. The markets will dictate what quality is and what shapes the viability of a business. Mayberry was an economic model that demonstrated those concepts.
In Mayberry R.F.D. the veneers of safety, sound mortgage practices and foot-tapping porch homes holding their market value, reinforced our beliefs of future comfort.
Bank savings accounts and nest eggs would be there for generations. Decades later Savings and Loan Banks, unable to compete with the growing number of financial firms offering non-banking services and products were almost put out of business. The markets demonstrated that their viability in a changing global financial environment was not possible. Account holders heard threats of untold losses. Nevertheless, government intervention saved many nest eggs. Then came deregulation and multinational banks grew in unbelievable power.
A decade after the deregulation of banking, investment banker James “Jamie” Dimon, CEO of JP Morgan and non-resident of Main Street, admitted that through dishonesty his firm was suffering a loss of an estimated $4 billion. Then UK based Barclays, known for its clusters of banking businesses revealed cheating in mortgage indexes or LIBOR speculations. Globally dominant in both corporate and investment banking services they contain the largest group of wealth managers. Most recent disaster du jour is HSBC. It dominated business news when their monetary laundering and terrorists’ ties came to glaring light. Huge monetary exposures in the mismanagement of investment funds scandal or mortgage banking cheats have undermined the confidence of the populace in multinational or universal banks. Many politicians parrot the economic phrases of Economist Milton Freidman who spent a lifetime evaluating the reasons why banking should not be government regulated. In the event of another financial meltdown – much of the world’s wealth would be loss.
The regulation or deregulation of our financial institutions is not the only cause and effect of global economic stress.
Blame many of our economic woes on global structural unemployment. It swells liquidity artificially through social benefits like unemployment payments while not addressing the need for full employment. Nevertheless, the late Mr. Friedman shared that any intervention by any government-authorized regulator would merely strangle free enterprise. For example, he cites that when government regulatory artificially sets minimum wage for workers it hampers growth in the private sector. In allowing the job creators to set their own rate of pay, global employers like McDonalds would find it easier to hire more workers at lower hourly wages. Mr. Friedman offers that this is a means to economic stability. It is debated that as long as businesses flourishes under this aegis the society benefits. The realities that are missing are the facts of the burdens on societies in having too many marginalized and under trained laborers. This concept endangers the laborer by marginalizing through inadequate training and encouraging stagnation to upward mobility. This brings to stunning clarity today’s labor market suffering too few well-trained wage earners.
While non-regulated corporations are cultivating over paid executives and feeding a multiplying and greedy stockholder. Multinational corporations thrive.
Yet fiscal uncertainly, vis-à-vis congressional brinkmanship continues to plague projections to healthy outcomes in economic recoveries. A superficial review of Mr. Freidman’s arbitrary observations remains in question. Rather it would be better to cite that the central banks of the world must act as guardians of economies during periods where greed or mismanagement of wealth has created a downturn in economies. If in fact the world held to the views of Adam Smith and Milton Freidman, wild global market fluctuations attributed to Ben Bernanke’s chat events before congress would be non-existent. Yet even Mr. Bernanke must remind the world that he like all global economic regulators, must act within dual mandates.
The dual mandate for the non-governmental agency Federal Reserve System and its FOMC or Federal Open Market Committee is the same as all global economic regulators. In 1977, Congress amended The Federal Reserve Act. Its monetary policy objectives of the Federal Reserve were,
“The Board of Governors of the Federal Reserve System and the Federal Open Market Committee shall maintain long run growth of the monetary and credit aggregates commensurate with the economy’s long run potential to increase production, so as to promote effectively the goals of maximum employment, stable prices and moderate long-term interest rates.”
The science of economics is not a static concept meant to be biblically applied to humanity. Economics is generic and organic. Our system of capitalisms has created the perfect examples of the social contract. We may weave Adam Smith’s Invisible Hand into the mix of what constitutes our complicated economic system. Nonetheless, it must be argued that our current systems enjoying the benefits of a deregulated commerce, has also fabricated an intricate network of needs for socialization and government intervention.
When an economic construct no longer serves in maintaining the health of the system, it will present like boil to be expunged.
Even foot tapping porches have a place in today’s economy.
Posted by Barbara Cerda
This entry was posted on Saturday, July 21st, 2012 at 3:29 AM and is filed under AP-Business,