Sunday, March 29, 2009

To Regulate or Not to Regulate, that is American Exceptionalism

Government regulation of the market in American has always been either too invasive or too superficial, never just right. This tells us more about ourselves than the day-by-day report card of Obama's fledgling administration.

The Obama adminstration's firing of GM CEO Rick Wagoner seem to some to have been a power grab and an overkill; yet others feel that the administration's plan to help to buy up some of the toxic assets owned by banks will be too easy on the banks.

We swing between the extremes of excessive regulation and unfettered laissez faire - indeed we have majority factions within both major parties staunchly defending both extremes - because our country has never properly worked out the tension between the two.

Consider the last time an economic crisis of even greater proportions rocked the country. The New Deal and in particular the National Industrial Recovery Act (NRA) represented an even greater power grab by the Roosevelt administration than the one Obama is being accused of today, including the right by the president to approve of a set of "codes of fair competition" for every industry regulating minimum wages and maximum weekly hours. The Supreme Court unanimously declared the NRA unconstitutional in 1936.

As a country born without the feudal baggage of the old world and one which has constructed the self-fulfilling myth of the American Dream, we have never had to fully confront the crisis of capitalism that industrialization provoked elsewhere. Even having experienced the Great Depression, we still have not found, and no politician has successfully articulated, a sustained national consensus about the relationship between the state and the economy. Our love-hate relationship with the federal government explains American exceptionalism, but it also the source of our current woes.

Because ours is a capitalist economy which concedes the value of government intervention and regulation, we must live with mixed (and hence often botched) solutions to our current economic crisis. We can neither nationalize the banks - and hence control how they are run including how executive compensation is structured, nor can we leave the banks alone - no politician would dare risk a depression on the heels of his/her inaction. In trying to find a compromise between market liberalism and political control of the market, we often end up achieving neither. So the Obama administration will alternately be accused of sleeping with Wall Street or witch-hunting it; decades after we have weathered the current crisis, we will still be debating whether or not what Obama did helped or worsened the problem. This is America, where we have a right, nay, a duty, to earnestly debate - as our Founders did - the necessity even of having a federal government at all.

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