I try very hard to avoid politicizing my blog, so I’m reluctant to bring up any political party in the my writing. However, I caught the following chart on Greg Mankiw’s blog:
The divide between Democratic and Republicans on the relative threats posed by big government and by big business is startling. While these positions appear to have hardened over the past few years, our public policies have often found a moderate balance. Considering the position of independent voters in the Gallup study, it seems likely that most Americans could meet in some middle ground. One could argue that, for the most part we’ve had success in that middle-of-the-road position. I take issue, of course, with those that say all our present woes are the result of deregulation (the record clearly points to areas where we need more regulation, but also some in need of less, and mostly those that need updated and better quality oversight, not necesarily more of it).
Without regard to party affiliation or loyalty, there’s a strong argument to be made that we’ve all benefited from our 2-sided debate on the appropriate role of government and the appropriate restrictions on business. This has resulted in middle-of-the-road policies that have worked. Coming from this perspective, the current state of political debate is a matter of great concern. I’d sum up the current debate as follows:
Democrats: We continue to believe in a greater role for government and more regulation of business
Republicans: We used to believe in limited goverment and deregulation, but we’re not quite sure now
This is not a debate, it’s a massacre. If you’re on one extreme of American politics, this is good news. But for most Americans, this is a battle in which one side has not yet joined, and we may all pay the price.
All Americans would be better off with a more vigorous policy debate. The Democrats have clearly laid out their beliefs and an agenda, but the Republicans have been incoherent on the topic of market regulation. I believe the GOP lost its voice as an outgrowth of this current “Crisis of Capitalism.” Many Republican policymakers became reflexively against anything that anywhere, anyhow restricted a financial transaction. This may have been a useful policy guide following the overregulated 1970s, but became less relevant following the generally pro-market stance of the 1990s. In other words, the strategy that won the war (the battle for free markets begun in the Reagan years), did not serve well in the ensuing peace.
Republicans can reclaim their voice by making a distinction between “regulation” and “governance.” You can still be in favor of free markets, yet support more and better governance of those markets. Rules of governance are no more contrary to free markets than rules of law are inimical to democracies. By “governance” I mean rules that enhance market integrity and transparency, as opposed to much heavy handed regulations. Examples of governance would include prohibitions against insider trading, while examples of other types of regulation would include, say, restrictions on credit card interest rates. This is not, in my opinion, to say that one is bad while the other is good — but to draw the distinction between a type of rule free-marketeers could embrace versus those they should oppose. It is true that one person’s governance might be an unecessary regulatory burden in the eyes of another. Yet framing the debate in these terms would benefit the public:
- It would allow for agreement across party lines in some critical areas truly in need of governance. The need for better transparency and restrictions in the over-the-counter swaps market comes immediately to mind. Framed as a critical governance issue rather than a friends-vs-foes of markets, would get some resolution in this vital area.
- It would clarify the entire debate about regulation, and allow for more thoughtful public discourse. I believe that we are ill-served by a political body where one party apparently can’t say no to any new rules, while the other can’t say yes.
This is not a question of being for or against any political party or set of beliefs. The Republicans need to find a coherent and consistent stance on regulation so that we will all benefit from better public policy forged through rigorous debate.