Two, Maybe Even Three, Senses Of Regulation

Sebastian Mallaby says the following:

"The financial turmoil has pushed the Obama campaign into the lead, and this is mostly justified. Barack Obama is more thoughtful on the economy than his opponent, and his bench of advisers is superior. But there's a troubling side to the Democratic advance. The claim that the financial crisis reflects Bush-McCain deregulation is not only nonsense. It is the sort of nonsense that could matter. "

You should read the rest of the column to understand why he says that.

I want to make a point about regulation. On the one hand, regulation can be seen as inhibiting the free market, keeping businesses from doing things that would enhance the economy. On the other, regulation can be seen as forcing more conservative business practices on the free market, in order to enhance the economy.

I see regulation through the eyes of taxpayers who are the ultimate guarantors of our financial system in a crisis. If the taxpayers are going to have to foot the bill in the end when crises like this one occur, then I think that it is entirely appropriate that taxpayers put constraints on businesses and business practices in order to guarantee that business in this country in some areas is conducted in a more conservative manner.

So, if you don't want the government to be the ultimate guarantor, then I can see arguing against regulation, since the losses will be borne by businesses. But if not, then government can put in place constraints on what is really their investment.

I agree with Mallaby that it is a real concern that the reaction to this crisis, as in all crises, will be over-regulation. I do not agree that the reaction should be no regulation, but rather minimal and effective regulation to obviate the occurrence of crises.

There is also a lot of talk about socialism, etc., but that is a lot of nonsense. We will continue to have a free market and pursue free trade, however imperfectly. In the real world that is all that we can expect.