The following is a letter I wrote in response to an article by Robert J. Samuelson, "Rethinking the Great Recession," which appears in the Winter, 2011 issue of the Wilson Quarterly:
Essentially, Robert J. Samuelson's article boils down to one simple idea: that this recession, like others, was caused by a somewhat cyclic period of unbridled enthusiasm. Samuelson presents two sides to the debate, those of the left and the right, and refutes each. However, Samuelson's rebuttal of the position of the left is contradicted by his own words.
While regulations did exist, without adequate enforcement, essentially there was no effective regulation. This is more than just an issue of semantics. If I suddenly decide that it's no longer permissible for people to wear a baseball cap with the brim turned to the side, so what? With little or no enforcement, it would be meaningless. It's also unimportant whether the failure of regulation is caused by regulators' lack of sufficient intelligence or foresight, or if it's caused by the weakness of the regulations themselves. The outcome is the same.
One needn't have a better grasp of recent history than the author to realize that the regulation of much of the financial industry was a mere phantom. Samuelson says it himself: “...many mortgage brokers were on loose leashes.” And “regulators should have spotted...” (emphasis added). But they didn't spot, they didn't stop, they didn't really even slow down much of the rampant orgy of risk-taking at all.
What this means is that Samuelson's conclusions are not supported by his rebuttal. We, as a country, have fallen down in the effective regulation of financial institutions and this falling down corresponds to the “instability” (as the author puts it) we are now experiencing. The last time that effective regulation was at levels comparable to say, 2007, was in the time leading up to the great depression.
Isn't the purpose of regulation to prevent not only acts of deliberate criminality but the unbridled enthusiasm Samuelson alludes to? Samuelson is correct in pointing out that economic cycles are inevitable and only misguided arrogance can lead us to believe that our government or free-market systems truly have control of them. But history has shown that, when regulation weakens, instability worsens.
Copyright Thrustblog, 2011