Deregulation has been the mantra on both sides of the aisle since the late 1960s. Long gone are Democrats like Michigan's Phil Hart who, as chair of the Senate Antitrust Subcommittee, held hearings on the concentration of economic power in the United States, and proposed expanded government regulation of everything from the oil and auto industries to pharmaceuticals to professional sports. Hart believed that because wealth and power were concentrated in the hands of such a small number of corporations, the market economy had become no more than a facade. In this context, what would bring about lower prices and greater productivity and innovation was more government intervention and regulation, not less.
Hart got a Senate building named after him, but his warnings about the threat of unbridled corporate power and consolidation went unheeded. Instead, the rush to deregulation began, first in the transportation sector. Efforts begun under Richard Nixon and Gerald Ford came to fruition under Jimmy Carter, who hired deregulation guru Alfred E. Kahn to head the Civil Aeronautics Board, the widely loathed agency responsible for regulating the airline industry. Senator Ted Kennedy and his then aide, future Supreme Court Justice Stephen Breyer, embraced deregulation as a consumer issue, and with their support, Kahn quickly worked his way out of a job: The 1978 Airline Deregulation Act dissolved the CAB and removed most regulation of commercial airlines. Carter also signed into law bills deregulating the railroads and the trucking industry.
You could argue that transportation deregulation has been a wash—replacing a system of bureaucratic incompetence with one of profit-seeking negligence, and exchanging safety for lower prices. The same cannot be said for the deregulation of the energy sector, notably the natural gas and oil industries under Ronald Reagan, and the electric utilities under George H.W. Bush and Bill Clinton. Left to its own devices, a deregulated energy industry has given us Enron and Exxon—California brownouts and $100 barrels of oil. Deregulation of the telecommunications industry, also under Clinton, reduced the number of major phone service providers to just a handful of multimerged giants.
Even more damaging, in light of today's economic crisis, was the sweeping deregulation of the banking and financial services industries that took place in the 1990s. What makes this enterprise particularly confounding is not only the fact that it took place under a Democratic president with support from a majority of Democrats in Congress, but that it followed so closely on the heels of the savings and loan crisis, which ought to have served as a cautionary tale on the dangers of deregulation in the banking sector. The Depository Institutions Act of 1982, another Reagan initiative, was supposed to "revitalize" the housing industry by freeing up the S&Ls to make more loans. Instead, the regulation rollback led to what economist John Kenneth Galbraith called "the largest and costliest venture in public misfeasance, malfeasance and larceny of all time" as they engaged in a fury of high-risk lending. The collapse that followed cost taxpayers an estimated $150 billion in government bailouts, and contributed to the recession of the early 1990s.
Yet Bill Clinton, elected in large part because of that recession (a la James Carville's "It's the economy, stupid"), was talking about deregulation before he was even inaugurated. The National Review reported that "Bill Clinton embraced at least one Reaganesque idea at the Little Rock economic summit" he held in December 1992: "banking deregulation."
The banking industry objected to regulations put in place in 1989 after the S&L debacle, as well as others dating back to FDR. The heads of the six major U.S. banking associations, according to the National Review, had written "a long letter to the President-elect in December advocating nine substantive reforms." The conservative magazine concluded that the new president seemed more than willing to oblige, but bank deregulation was being held back by such powerful congressmen as "House Banking Chairman Henry Gonzalez (D., Tex.), a populist throwback to the Thirties who believes bankers are by definition out to exploit the 'little guy'" and "House Energy and Commerce Chairman John Dingell (D., Mich.), who holds a quasi-religious belief that banks caused the Great Depression and must be tightly regulated. (Dingell's father was a principal author of the Glass-Steagall Act of 1933.)"
The Glass-Steagall Act was, in fact, a primary target of the Clinton-era deregulation effort. An early piece of New Deal-era legislation, the act was passed in response to speculation and manipulation of the markets by huge banking firms, which most liberal economists believed had brought on the crash of 1929. Glass-Steagall imposed firewalls between commercial banking and investment banking, and between the banking, brokerage, and insurance industries. According to the Center for Responsive Politics, which tracks lobbying and campaign contributions, "Eager to create financial supermarkets that peddle everything from checking accounts to auto insurance, the three industries for years have lobbied Congress to streamline regulatory hurdles that bar such operations." |
