To hear leftist politicians and their media allies tell it, the current financial turmoil was directly caused by deregulations carried out in just the past eight years under President Bush. Barack Obama aide Austan Goolsbee told Politico: “The core issue is pretty easy to understand. We’ve just spent the last eight years operating on the premise that the government shouldn’t be in the business of setting the rules of the road.”
Problem is Goolsbee just has his facts wrong. George Mason University economist Tyler Cowen explains:
There is a misconception that President Bush’s years in office have been characterized by a hands-off approach to regulation. … the Bush administration’s many critiques of regulation are belied by the numbers, which demonstrate a strong interest in continued and, indeed, expanded regulation. … For the proposed 2009 fiscal budget, spending by regulatory agencies is to grow by 6.4 percent, similar to the growth rate for last year, and continuing a long-term expansionary trend. For the regulatory category of finance and banking, inflation-adjusted expenditures have risen 43.5 percent from 1990 to 2008. It is not unusual for the Federal Register to publish 70,000 or more pages of new regulations each year.
Cowen then turns to the current crisis:
The biggest financial deregulation in recent times has been an implicit one — namely, that hedge funds and many new exotic financial instruments have grown in importance but have remained largely unregulated. To be sure, these institutions contributed to the severity of the Bear Stearns crisis and to the related global credit crisis. But it’s not obvious that the less regulated financial sector performed any worse than the highly regulated housing and bank mortgage lending sectors, including, of course, the government-sponsored mortgage agencies.
In other words, the regulation that we have didn’t work very well. … if you hear a call for more regulation, without a clear explanation of why regulation failed in the past, beware. The odds are that we’ll get additional regulation but with even less accountability and even less focus on solving our very real economic problems.