Friday, May 21, 2010
Note: The following debate summary was written with the aid of the notes I took during the event I describe. Any inaccuracies in the positions taken by the speakers or of the events they discussed are my own.
Yesterday evening, I attended the Ford Hall Forum debate, "Lessons from the Financial Crisis: More Government or Less?" between Yaron Brook of the Ayn Rand Institute and Peter Kadzis, editor of the Boston Phoenix. This event was smaller than other Ford Hall Forum events I have attended in the past, and took place in a moot court room at Suffolk University Law School. Attendance was good, but the size of the venue limited the audience to a little over one hundred people.
Kadzis opened the debate with his argument, which almost instantly revealed his dominant approach to ideas to be pragmatism. Rambling at first, Kadzis discussed the necessity of "regulations," by which he vaguely meant not just the laws and rules of central planning that were under debate, but also customs, legitimate laws, and even rules set by parents for their children.
Kadzis argued that he government had been deregulating from the early 1980s all the way through the presidency of George W. Bush, whom he said was pro-business. Subsequently, he painted an impressionistic picture of an economy collapsing for want of regulation. The case of Bernie Madoff, the "re-swindling" of the European Union by Goldman Sachs, and the "9/12" collapse of Lehman Brothers (My notes say in 1982.) all showed that Wall Street has become almost as "powerful" as a nation-state -- an intolerable situation that he claimed must be countered by more government regulation. He emphasized his point by saying that 9/12 was far more significant than 9/11.
Brook began staking his position by noting that he agrees with Kadzis that we face an era that could be marked by a deep, worldwide depression and the rise of dictatorships. However, he disagreed about the cause, which is that our government has been increasingly regulating the economy for decades, including during the period Kadzis claimed saw a rollback of state regulation of the economy. This regulation, Brook would argue, precipitated the crisis.
Acknowledging the role of FDR, but skipping to the post-9/11 credit expansion by the Federal Reserve for the sake of brevity, Brook noted the role of the Fed and other government agencies in incentivizing improvident borrowing by individuals and financial institutions alike throughout the economy. Taking the housing bubble as an example, he further noted the role of other government policies in fostering malinvestment.
The above problems were compounded by other regulations. The "too big to fail" doctrine, in place since the 1980s, encouraged complacency among the major players. The three major credit rating agencies, creatures of the regulatory state to begin with, gave absurdly high bond ratings under political pressure. (My notes may be bad here: This point may have come only during rebuttals.) Furthermore, from Bush's passage of Sarbanes-Oxley to Eliot Spitzer's legal assault on Wall Street (which "destroyed its business model"), our economy, already deranged by regulation, ended up being regulated even more tightly as time went on.
In addition to showing how central planning harms the economy, Brook noted failures by the government to perform its legitimate function: Among all the events discussed to that point, the one thing the government should have done -- stop the swindling Madoff -- it didn't do, overwhelmed as it was by its fruitless attempts to micromanage the economy.
Brook ended by (1) countering Kadzis's loose definition of "regulation," drawing a sharp distinction between central planning and the proper scope of government; (2) summarizing how regulation at every level of the economy has led to this crisis; and (3) noting that regulations have, paradoxically, led to whatever political power Wall Street might have by incentivizing it to try to influence the central planners. Brook ended with a call for a systematic rolling-back of government regulation of the economy.
I will only highlight the rebuttals and the question-and-answer period.
The title of this post comes from Kadzis's frequently claiming to agree with one point or another Brook made, only to hedge that with some variant of the theory-practice dichotomy (e.g., regulation is good for Wall Street, but less so the farther one gets towards the periphery of the economy; or the economy is too "complex" not to be regulated; or (his pole star) events like the BP oil rig blowout in the Gulf show that you can't allow a completely free market). Kadzis did make one very good point about contemporary moral standards having fallen greatly. Nevertheless, Brook capitalized on this, too, by noting the government's role -- via all-encompassing regulations -- in encouraging the "dumbing-down" of American society and a lackadaisical approach to many of the things government now purports to look after.
Because Kadzis's lack of principles left him on the defensive and made him too disorganized to counterattack, Brook was able to take advantage of his own rebuttal time to further flesh out certain points from his original argument. For example, he pointed out how central planning puts the fate of the economy into too few hands, and that past events have shown the dire consequences of panic on the part of these master regulators. Most notably, Brook was able to tie our public's sheep-like trust in regulators to altruism: Many trust regulators because they aren't "in it for themselves" and we have been taught to regard self-interest with suspicion even as we act on such a basis every day. (e.g., We don't go to the mall in order to "stimulate the economy.")
The Q&A was pretty good, with two questions standing out particularly as indicators of how the debate went.
The first of these was an earnest Russian man directing his question to the pro-regulatory Kadzis: He asked what role government regulation played in the greatest ecological disaster in history, the Chernobyl reactor accident. This brought the house down, but Kadzis managed to miss or evade the point anyway when he countered that Russia was a "rogue state."
The second such question came from an angry leftist who asked Kadzis how the editor of the Phoenix could lack fire in such a debate. Kadzis, true to pragmatist form, said that this was a highly theoretical debate, and that nothing would come of it anyway. After Kadzis's reply, Brook memorably answered, "I fully intend to make a difference."
Over drinks with friends after the debate, I expressed some disappointment that the pro-capitalist share of the audience made it seem a little like Brook was preaching to the choir, but that impression is incorrect on two counts. First, I understand that the debate will eventually air on Ford Hall Forum Television. Second, it certainly did me good to see Brook's confidence and clarity, and I am sure I am not alone there.
Today: Corrected a typo.