Obama in Racine, Wisconsin

http://www.futureofcapitalism.com/2010/07/obama-in-racine-wisconsin

President Obama made some extraordinary remarks the other day in Racine, Wisconsin. The White House Web site has a transcript; here are some excerpts:

The other party's opposition is also rooted in some sincere beliefs about how they think the economy works. They think that our economy will do better if we just let the banks or the oil companies or the insurance industry make their own rules. They still believe that, even after the Wall Street crash, even after the BP oil well blew, that we should just keep a hands-off attitude. They think we should keep doing what we did for most of the last decade leading up to the recession.

So their prescription for every challenge is pretty much the same -- and I don't think I'm exaggerating here -- basically cut taxes for the wealthy, cut rules for corporations, and cut working folks loose to fend for themselves. Basically their attitude is, you're on your own.

Now, here's the problem. And again, I don't question that a lot of them sincerely subscribe to this view. Here's the problem: We've already tried these ideas. Remember, we tried them for eight years. We tried them for a good part of the last decade. We know where they led us.

On Wall Street, the financial industry and its lobbyists spent years chipping away at rules and safeguards that could have prevented the meltdown of -- that caused -- that was caused by Lehmann Brothers and AIG. But we didn't have those rules in place, that framework of regulation in place. So instead, we saw a disaster that nearly led to the collapse of the entire economy.

In the Gulf, we don't yet know what caused the explosion on the Deepwater Horizon oil rig. But what we do know is that for decades, the oil industry has been able to essentially write its own rules and safety regulations. Industry insiders were put in charge of industry oversight. And oil and gas companies were allowed to basically fill out their own safety inspection forms.

...So I just want everybody to remember, we've tried the other side's theories. We know what their ideas are. We know where they led us. So now we've got a choice. We can return to what we know did not work, or we build a stronger future.

My reaction: President Obama makes it sound like the idea that "They think that our economy will do better if we just let the banks or the oil companies or the insurance industry make their own rules" is crazy. But in a lot of sectors of the economy, including some of the most successful ones, the competitors do set their own rules, and it works pretty well. One example is competitive athletics. In professional sports, the team owners get together (sometimes with the unions representing the athletes) and set rules on everything from drafting new players to the length of a regular season to the designated hitter in baseball and the use of video replay to review close calls by officials. It may not be a perfect system, but it's a system that makes plenty of money for plenty of people and creates lots of enjoyment for lots of fans. Again, the rules are set mostly by the competitors, not by the government.

Another example of a self-regulating industry is Hollywood. Now, plenty of political conservatives who think Hollywood produces a lot of trash that coarsens the culture may not like this example, but it should be an example that Mr. Obama and his Democratic allies can at least relate to. The motion picture ratings system ("G," "PG," "PG-13," "R," etc.) was set up not by the government but by the Motion Picture Association of America together with the National Association of Theatre Owners. It's the Academy of Motion Picture Arts and Sciences, not the FCC, that gives out the Oscars. Again, Hollywood isn't perfect, but it's an area where America is a global leader, and an industry that makes a lot of money for a lot of people and creates lots of enjoyment for lots of movie-goers.

Mr. Obama's claim that the financial crisis was caused by a lack of government regulation is just not supported by the facts. A lot of the institutions that got into trouble, such as Citigroup, were heavily regulated. The oil industry, too, is heavily regulated, which is why "Drill, Baby, Drill" was a campaign slogan. Now, you can argue that the regulators did a bad job. That's a hard argument for Mr. Obama to make in regard to the financial crisis, since he promoted the head of the New York Fed, Timothy Geithner, to Treasury secretary and reappointed the chairman of the Federal Reserve, Ben Bernanke. But Mr. Obama's claim, "we've tried the other side's theories," isn't really accurate. Government regulation with powerful lobbyists may appear to be similar to self-regulation, but it's not really the same thing.

Leave it to Mr. Obama to portray the past decade -- a period of significant expansion in the size of government that saw passage of the Sarbanes-Oxley law and a more-than-doubling of the SEC budget -- as some kind of experiment in laissez-faire capitalism.

by Ira Stoll  |  Jul 5, 2010 at 11:34 pm Related Topics:  AIG, Banking, Capital Markets Regulation, Federal Reserve, Politics, President Obama, SEC, Taxes, Timothy Geithner receive the latest by email: subscribe to the free futureofcapitalism.com mailing list