MY VIEW, Robert G. Dyck: Where has deregulation gotten us?

By Robert G. Dyck

Robert G. Dyck

The documentary film "Inside Job" (Sony Pictures Classics, 2010), shown in Birmingham recently, provides a devastating analysis of high risk-taking and corruption in the financial services industry. It contains very telling interviews with banking executives, government officials and highly placed business and economics professors.

Despite revelations like "Inside Job," most leading business and economics educators continue to defend the underlying economic and administrative theory that supports the nearly absolute deregulation of the financial services industry, despite cataclysmic economic failures that began in 2008 and continue on a global scale today. These failures demonstrate the underlying economic theory is bankrupt.

During the 1960s and '70s, Milton Friedman and his Chicago School popularized and politicized the notion that government interference in the market is an undesirable distortion of the free market, defined as the place where individual self-interested decisions sum to desirable economic outcomes. As a result of Friedman's mistaken theoretical perspective, the U.S. and many other countries now have adopted economic policies that render them incapable of providing full employment, basic human services and a decent income for the 99 percent.

Most people seem to have forgotten that the purpose of any economy is to provide goods and services which people need and can afford, not to make money for the few as fast as possible. Accordingly, we have lost the talent, entrepreneurship and collaborative spirit necessary to make a goods and services economy work successfully. These capacities have gone to the financial sector and the corporatocracy (the unhealthy linkage of corporate interests and government), whose interest is simply the quick buck.

It also has become apparent the financial services sector is incapable of regulating itself to avoid unreasonable risks that threaten the well-being of whole societies. Making money fast requires huge risks, and if the risks don't pan out, society as a whole becomes the loser: public-sector bailouts, distortion of the goods and services economy, and the loss of full employment, decent jobs and a living wage.

"Inside Job" offers no remedies except to restore regulatory control on the financial services industry. As necessary as that is, it does not fully address the root problem of economic reality at this time, which is the "rationality" of self-interest, as claimed by prevailing economic equilibrium theory, is not sufficient for good societal outcomes. Good outcomes include full employment, decent incomes and basic services.

For fully functional democratic societies, we must have economies based on mutual interest and collaboration.

An important practical step in this direction has been proposed by U.S. Rep. John Conyers Jr., the ranking member of the House Judiciary Committee. His bill, HR 870, the Humphrey-Hawkins 21st Century Full Employment and Training Act, would recreate something like the Works Progress Administration, financed with a nominal tax on high-risk financial transactions. It would generate revenue, create significant employment opportunities and increase demand for consumer goods. But it would not increase our national debt.

We should strongly encourage its enactment.

Misplaced obsessions with national debt and low taxes for the wealthy dominate the current debate on the economy. If Congress cannot muster bipartisan support to enact HR 870, state and local governments should link with Warren Buffet and the top 1 percent who have already volunteered to provide significant additional revenues. Their funds would then be invested in infrastructure, health care and housing for the other 99 percent, on a local and regional rather than a national basis.

Robert G. Dyck is emeritus professor of public and international affairs at Virginia Tech University. He now lives in Birmingham and is one of the authors of "The New Science of Sustainability: Building a Foundation for Great Change" (2008). Email: bobdyck@vt.edu.

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