Yes, I said Deregulation…

Every election cycle has a buzzword that scares people and incites emotion. Some examples are terrorism and liberal. Both of these words were words you wanted to make sure you held a good stance on. Words that you could use to help your argument and hurt the other. This elections word is Deregulation, which Biden has taken a special interest in bashing. When put into Google it comes out with this definition: “Lifting of government controls over an industry.”

Deregulation is having faith in the market. If you listen to Obama and Biden, you would think there was no regulation on the current financial sector. When in fact it is the most heavily regulated sector in America and probably the world. Other than Defense, it is the only industry that has both a Department and central authority (the Fed) along with others like the SEC.

Capitalism is no longer in the debate and since it isn’t there is no room for deregulation. Palin couldn’t have said yes, deregulation is the key here. If we deregulate we will win. Capitalism and deregulation should be in the debate as Capitalism is the American Dream.

Mises believed that regulations lead to socialism. If you regulate one part of the economy, you constantly have to regulate more and more in order to prevent the by products of your initial regulation. Sure, at first the first regulation seems to be easier than letting things go free but when you look at all the regulations you had to put in place to fix this, it ended up not being worth it.

I will leave you with this real life financial sample. The FDIC was created to insure peoples money at a reasonable amount to prevent bank runs and keep people from losing their life savings. This makes sense when you look at that snap shot. What happened was is that you allow banks to not be watched. So you have to create a part of the FDIC that watches what the banks does. This is more bureaucracy and more money being spent. Still not a big deal.

Next, the banks invest that money into stocks and take too much risk. The bureaucracy cannot watch the banks well and they aren’t doing anything wrong. Stocks become vunerable and people lose money, which makes the FDIC have to pay out. They then ban the buying of stocks by financial industries. They then start using the money they were investing into stocks to invest more in mortgages. This is making their portfolio less diverse, which means when the housing market fails, it hurts bad.

So now what was the problem? Free-market banking? or Regulations?


Published in: on October 3, 2008 at 6:49 am  Leave a Comment  
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