October 14, 2008 | Commentary on Economy
America's liberals are gleefully pounding nails into Ronald Reagan's coffin. His life is beyond their reach, but his legacy is not. Their goal is to destroy that legacy by convincing America that free markets and conservative principles created the economic crisis.
To them, Reagan's vision belongs on the dustbin of history.
The liberal narrative is as simple as it is wrongheaded: The financial meltdown, they say, was brought on by deregulatory policies championed by Reagan, which allowed capitalism to run amok and, ultimately, destroy our economy. Nonsense!
Deregulation is not perfect, but has produced many successes. Excessive regulation, on the other hand, continues to generate many casualties, and bears a large part of the blame for the mortgage meltdown. It was a little-noted HUD regulatory action in 1996 that effectively required lemders seeking government guarantees to grant poor-quality loans.
Yes, failure to regulate government-sponsored enterprises (GSEs Fannie Mae and Freddie Mac) properly was doubtless one cause of the mortgage mess. But government-imposed regulations were a greater culprit, along with political cronyism. That's a story too little covered by mainstream media (although "Saturday Night Live" got it right in a skit that skewered liberal lawmakers who protected Fannie and Freddie while they misbehaved).
The regulatory drum is being beaten loudly by liberal politicians and left-wing ideologues intent on using the mortgage crisis as a lever to create more big government. The Left-Wing Conspiracy is in attack mode, and their talking points are echoed in headlines and comments like:
At the last presidential debate, Sen. Barack Obama joined the chorus, saying, "This is a final verdict on the failed economic policies of the last eight years, strongly promoted by President Bush and supported by Senator McCain, that essentially said that we should strip away regulations, consumer protections, let the market run wild, and prosperity would rain down on all of us."
Even Gov. Sarah Palin didn't stand firm as she adopted a similar approach at the vice-presidential debate. Asked about the source of the crisis, she said, "Darn right it was the predator lenders, who tried to talk Americans into thinking that it was smart to buy a $300,000 house if we could only afford a $100,000 house. There was deception there, and there was greed and there is corruption on Wall Street. And we need to stop that."
Greed was indeed a problem, but not just on Wall Street and in the mortgage industry. It also motivated buyers who thought they could get something for nothing. Don't omit the political greed, although politicians want to mask this by holding hearings about the faults of others but not of themselves. Thanks to politics, our government was not only an enabler, but actually required lenders to issue something-for-nothing loans.
As noted by George Mason University economics professor Russell Roberts, "For 1996, HUD [Department of Housing and Urban Development] required that 12 percent of all mortgage purchases by Fannie and Freddie be 'special affordable' loans, typically to borrowers with income less than 60 percent of their area's median income. That number was increased to 20 percent in 2000 and 22 percent in 2005. The 2008 goal was to be 28 percent."
The left's affordable-housing agenda created not just incentives but actual mandates for bad behavior, especially with their political allies running those GSEs. Public outrage stopped the Clintons from taking over health care. But their HUD stealthily sowed the seeds of today's financial mess.
Government regulation cannot now be the all-purpose answer when it was the source of the problem. We should also remember that deregulation, Reagan-style, has produced plenty of success stories.
Today's business efficiencies and affordable consumer goods trace to the streamlining of commerce and just-in-time manufacturing. It was the abolition of the old Interstate Commerce Commission that boosted today's modern system of express deliveries that power both Fortune 500 shipments and eBay commerce.
Telecom deregulation has given us innovations we now take for granted, including ever-present multi-purpose cell phones, texting, GPS systems and ubiquitous Internet access. Only we few who ever used an old 300-baud modem on a regular phone line (subject to billing surcharges) can fully appreciate the difference.
If regulation is always wonderful, how about the mark-to-market and other tangles of the Sarbanes-Oxley laws that are another factor in today's crisis?
If we want affordable health care, why do we have 135,000 pages of federal regulations on the doctors, hospitals and other providers? They simply add the enormous compliance costs onto our bills and insurance premiums.
The cost of a new car is expected to climb by $7,000 just to meet the mileage requirements enacted last year. Detroit claims the cost of the necessary research, development and re-tooling is why they got their own $25 billion bailout recently.
Our annual loss of $700 billion to other nations is largely due to federal dictates against offshore drilling plus federal red tape that blocks or delays drilling on public lands (the reason so much leased land isn't being drilled on). Those are forms of over-regulation.
As for Obama's claims that the Bush administration rushed pell-mell along the deregulatory track … rubbish! The Heritage Foundation's James Gattuso notes, "In 2007, the Federal Register [where regulations are published] ... weighed in at 72,090 pages ... higher than any year before 2000." Since 2001, Gattuso says, the federal government has imposed almost $30 billion in new regulatory costs on Americans - about $11 billion in fiscal year 2007 alone.
Rather than demonizing the patron saint of the modern conservative movement, today's leaders would do well to remember his advice that more government too often isn't the solution. It's the problem.
Otherwise, we should start carving a tombstone for American free enterprise. The epitaph could be what Reagan said are the nine most terrifying words in the English language: "I'm from the government and I'm here to help."Ernest Istook is recovering from serving 14 years in Congress and is now a distinguished fellow at The Heritage Foundation.
First appeared in WorldNetDaily