I think about this question a lot too because I have been defending regulated capitalism for over 30 years now. Trust me on this, swimming against the tides of economic orthodoxy has been a struggle but here's my "elevator speech" on why you simply MUST strictly regulate the organs of capitalism like the financial business.
1) Regulated capitalism ALWAYS outperforms deregulated capitalism because it creates the space that allows the honest businessperson to thrive. Honest businesspeople make better products and provide better services than crooks.
2) Regulation, unfortunately, can become an end in itself. There ARE bad rules that get in the way of honest interactions between people. Perfect example in today's Swedish Local. Imagine being a taxpayer and knowing your taxes are going to pay for THIS:
Sweden mulls sex ethics rules for overseas staff
The Swedish government plans to invest 10 million kronor ($1.49 million) to enable state agencies to develop clearer ethical guidelines for staff working overseas in order to curb the buying of sexual services and improper sexual relations.3) The difference between necessary regulation and goofy regulation is scale. The bigger the organization and the more people its actions affect, the more it should be regulated. Individuals and small organizations should be subject to minimal regulation. (I have a longer version of this argument here.)
Matt Taibbi: Wall Street Has Seduced America With Randian Pseudo-Libertarianism
Last year, Matt Taibbi made huge waves when he wrote what were the most circulated articles on Wall Street. Now, he’s crystallized his thoughts into a new book Griftopia: Bubble Machines, Vampire Squids, and the Long Con That Is Breaking America.
I caught up with Matt to hear what he’s learned while following Wall Street and Washington during these most extraordinary times…
Damien Hoffman: In your new book Griftopia, you talk about how Wall Street and Washington have ironically got middle class America to support their agenda. How is this happening? Will it last?
Matt Taibbi: The Grifters have been getting people to support Wall Street’s political agenda by seducing them with a [Ayn] Randian and pseudo-libertarian ideology. It’s always been around, but it’s just reaching a fever pitch now. And it’s the only way ordinary people can be convinced to endorse a deregulatory agenda. I think it’s going to last.
Damien: In your experience at the Tea Party events, do they understand the cosmic irony that they basically just got robbed because there were no sheriffs left in the Wild West, yet now they all stand for a movement that prefers to keep it that way?
Matt: No, they don’t see the irony at all. And interestingly, a lot of them are real law-and-order types. I mean, they’re really into Cops and putting people in jail for smoking a joint. But when it comes to a financial crime, they have absolutely no interest in that whatsoever.
Basically, government regulation is the kind of stuff a lot of them see on a day-to-day basis, but in a different form. If they’re a hardware store owner, they see a local health inspector or an ADA inspector coming by to make sure they’re in compliance with something. These are all little annoyances and costs that they see when they interact with government. Unfortunately, that’s what they think is financial regulation. They don’t get that it’s a completely different ball game when you’re talking about JP Morgan Chase (JPM), Goldman Sachs (GS), and that level of power requiring oversight.
Damien: So, can you explain how what you call the grifter class pulled off this magnanimous trick?
Matt: Well, there’s a very simple explanation for how they get away with this stuff: modern financial services is so unbelievably complicated that people will naturally strive for simple explanations. And when people like these Tea Party leaders come around offer a very simple explanation — regulation bad, deregulation good — people jump at the chance to believe because not believing means they must commit themselves to actually figuring it all out.
It’s so unbelievably intimidating to people to make the commitment to understand all this stuff, they will flee to any alternatives. And a viable alternative is to believe the idea that all this mess was caused by regulations and government meddling. That’s something people can understand. more