Wednesday, September 25, 2013

Deregulation: Bipartisan + Cathedral Fueled

Deregulation. Ask the common American which president they associate deregulation with and Ronnie Reagan will most likely be their answer. Fighting the government beast was his crusade. The problem with that familiar narrative is that it is a lie useful to the media. Reagan did not do much of anything for deregulating the American economy. He did dramatically change the tax code and go on a military spending spree that helped our military-industrial complex, therefore protecting revenue streams for our productive economy. In American history, deregulation was a process that had many events outside the Reagan window. Spending a little time evaluating the facts, deregulation was a bipartisan process that the cathedral pushed on behalf of the common man.

Tucked away in a Fortune magazine from 1977, Paul Weaver's article "Unlocking the Gilded Cage of Regulation" explains the story of deregulation's promise for America. The post-1932 iron triangle of big business, congress and the bureaucracy was being challenged and in the words of Paul Weaver was looking corroded. The promise of deregulation was the Milton Friedman mantra of markets will solve problems. Markets are suppose to be free so that they can be efficient, and efficient means good. The economic problem of the mid-'70s was high inflation, and it did doom both Ford and Carter's presidencies. Deregulation was proposed as a solution to the high inflation problem. In the article, the issue of the FED being loose with monetary policy in the face of inflation is not cited. Budget deficits are absent from the article. There is no mention of Nixon closing the gold window and allowing the dollar to float, destroying the Bretton Woods agreement and sending all nations on a hunt for a store of value.

There was no need to mention severing the basis for valuing all commodities because economists and civil servants had the answer. Weaver writes that "economists agreed that government regulation was a major cause of the high and rising cost of living". Not one citation of the '74 oil embargo that created cost push inflation in the American manufacturing based economy. Academics were not the only ones pushing the deregulation line. Civil servants were the driving force inside the government. The deregulation proposals were around since Nixon's first term, but had languished due to more pressing matters. In Weaver's words, second and third echelon figures in the administration used patrons higher up like Roy Ash (Director of OMB) and William Simon (Treasury Secretary) to put proposals in front of President Ford. Weaver calls this crew a cabal.

Problem with this push for deregulation was that the first targets were transportation related that had a heavy union presence. This would be tough for a Republican president to attempt when facing re-election. While deregulation was ideologically appealing to the free market GOP, there had to be an edge for the Democrats. While accomplishing nothing of substance, congressional hearings on transportation managed to get Senator Ted Kennedy on the side of deregulating transportation for the savings it would provide Americans. The narrative was set. Deregulate to save the little guy money. With a Democrat in the White House, deregulation rolled through Congress in the late '70s with Jimmy Carter there so sign bills into law. Carter could do so in the face of the unions because where else were they going to send their campaign cash? Airline deregulation had the good fortune of, in the word of one pilot, bringing the bus stop to the sky. One item conspicuously absent from Wikipedia's deregulation page is the absence of the 1980 deregulation of deposit institutions that brought usury back into Americans lives. That was to protect banks from poor borrowers. That does not fit the narrative.

Deregulation took a breather for a solid decade or so with Reagan signing some international dereg acts, but nothing major. The low hanging fruit had been picked. On the narrative front, Americans were being reminded how Reagan wanted to destroy the environment safeguards that were newly installed in the '70s. Reagan was handcuffed by his party membership. Deregulation would have to wait for another Democrat to enter the White House and bring all of those free marketers dreams to life. NAFTA, the Telecom Dereg Act, and of course the Gramm-Leach-Bliley Act of 1999. Check the vote totals. These all passed Congress with large majorities because the GOP could claim ideological victory and the Democrats could claim it saved the little man money. When Bill Clinton signed the law to make student loans non-dischargeable, it was hailed as a new law that reduced the cost of borrowing for poorer students. Debt slavery was not mentioned.

The Fortune article was right in more ways than it could imagine. Near the end of the article, Weaver discusses the weakening hold of the old iron triangle and the pressure from new businesses and new avenues of change. What Weaver was hinting at was the decade long process of the old post-war productive economy and sound money policies wandering for new, solid footing before finding it in the petrodollar, Volcker era FIRE economy. Weaver did make an observation that few dare admit today when he wrote, "the central political trend of recent decades has been the decline of the traditional interest aggregating political party + the rising influence of the press, the public interest group, the intellectuals and the professions". Kenneth Galbraith would call the professions the technostructure, and that was the educated, technical managers and experts that managed our economy and cuddled up to government planning. Some readers would look at Weaver's ascendant coalition and call it the cathedral.

No comments: