There’s one law that lawmakers would do well to keep in mind, and that’s the law of unintended consequences. From our colleague Michael Derby, who covers the Fed:
A veteran Federal Reserve official cast his lot Wednesday with those who believe the government itself was a major player in driving events that led up to and created the financial crisis. “The financial crisis was not a failure of our capitalist system,” Federal Reserve Bank of Philadelphia President Charles Plosser said. “Nor was it largely the result of a lot of greedy evildoers whom we could just put in jail to solve the problem.”
Instead, the official said “it largely reflected a collection of incentives, some arising in private markets and some created by the government, that motivated individuals to act in ways that proved damaging to the nation’s overall economy.”
The central banker said government officials and legislators often don’t realize that as they write laws to protect against trouble “new rules and regulations, often made with good intentions, can create bad incentives, which, in turn, yield ugly results.” Put another way, “our efforts to ‘fix’ a perceived economic problem might create unintended consequences.”
Plosser’s on target, although he takes a rather benign view of things. Those rules were just produced haphazardly, on some random whim. At every stage, there was one of those proverbial “special interests” using their power and influence to push rule-makers in a specific direction, one that usually benefited the interest in question.
Think about, say, the scuttling of Glass-Steagall, or the decision not to regulate derivatives, or the lifting of leverage caps on investment banks. All of these had rather painful unintended consequences, but all of them were pursued by specific players that wanted to make an intended profit from the rules.
If this nation is going to get back to something resembling a working democracy, the corrosive, abusive effect of money in politics is going to need to be resolved, not just addressed. David Brooks wrote one of his typically too clever by half, counter-trend pieces yesterday, “Don’t Follow the Money,” in which he argues that money doesn’t decide elections. But the issue, the real issue, isn’t whether money guarantees a candidate an election-day victory. The real issue is that those “campaign contributions” can and often do amount to little more than thinly veiled bribes, an advance payment on services to rendered later.
The money isn’t necessarily intended to buy elections. It’s intended to buy candidates. That’s one of the three factors that combined are a major threat to the democracy, Robert Reich writes. “We’re back to the late 19th century when the lackeys of robber barons literally deposited sacks of cash on the desks of friendly legislators. The public never knew who was bribing whom.” The other components of this “perfect storm” (yes, it’s an overused cliche, but, well, it just got used again) are the fact that a great percentage of the national wealth is concentrated in a few hands, and that at the other end, “most Americans are in trouble.”
That so many Americans are in trouble is in many ways a direct consequence of those rules we were just talking about that were put in place that had those unintended consequences that Plosser mentioned. It will not matter which party controls Congress, or the White House for that matter, so long as the current system allows money to have such an outsized voice in Washington.
We need to divert the flood of money that’s drowning Washington. That’s the biggie. But don’t expect either of these parties to make a stand there; they’ve been bought and sold far too many times to get independent at this point.
I’ll tell you, we don’t need just a third party. We need a fourth, and a fifth. We need a big, big washout down in Capitol City, get rid of everybody.
paulbkk
October 21, 2010
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