The Problem with "Regulation"

As the US fumes over how much money was paid to AIG execs in bonuses, I sit with, paradoxically, both the knowledge of and absolute disbelief in how incredibly gullible, underinformed, and downright stupid the average American is.

Those of you who are among the "outraged" may be mad at me now. Okay.

We've known about the bonuses for months - they are honoring contracts from over a year ago. See what else the current administration and congress have known about all along, and actually helped create.

The problem with this AIG business is that Congressional laws, Executive programs, Federal Reserve monetary policy, and federal and state financial regulators all had a hand in creating this mess. Their policies created the conditions which allowed the housing bubble and the opacity of derivatives contracts which have now given the world economy a turbulent ratcheting down of its belt size. Their policies and decisions turned a localized market overexpansion affecting a few states into a full-blown crisis that will, before it plays out, have drastic structural consequences to world finance, almost certainly bring about substantial geopolitical changes, possibly ignite new or expand existing regional conflicts, and likely shift the world reserve currency regime away from the American dollar (as Russia is already calling for - you think things are rough now? Just wait until the American dollar is no longer buoyed by its world debt- and commodity-denominator status). You know what the worst, and the most condemning, part of it all is? AIG played completely within the government-sanctioned rules, as this article from the Wall Street Journal makes clear.

No one administration is entirely at fault here - the causes of the conditions which gave rise to this debacle directly stretch back to the Clinton Administration, and, it may be argued, much further. Politicians - IF they should ever decide to point fingers within their ranks rather than at AIG execs and Tim Geithner - will undoubtedly say it is one administration's or one party's fault, but that is not the case. It is the fault of the notion of government economic planning and regulation, and nearly every administration since Andrew Jackson's has been guilty of that.

Why does the government - whether Congress, the president, the Federal Reserve banking conglomerate, or even their best and brightest Ivy League economists - think it can successfully regulate (assuming any one of them could even understand) every aspect of the country's economy? A better question - why do average citizens, who regularly complain about Washington's ineptitude, trust the government to understand and regulate the economy? Government intervention always has unintended consequences and always creates winners and losers, skewing the playing field to the benefit of some.

My same question asked above - why does the government think it can successfully regulate - applies just as aptly to food policy. On Monday, Country of Origin Labeling (COOL) went into effect. The idea is that all fresh fruits, veggies, and meats should be clearly marked as to where they came from. A good idea. But meats have more requirements, and fish have even more. For domestic small livestock producers and aquaculturists, this means additional costly paperwork and animal tagging when their profit margins on their small-scale enterprises are already low enough. Some may accept that this may very well be the cost of better regulation and food safety measures and that small producers will simply have to run more efficient businesses to stay competitive, and that's fair.

But, as always, government regulations are hypocrital. COOL does not apply to any food which has been processed in ANY way - smoked, emulsified, mixed with other ingredients - and does not apply to the ingredients included in processed foods. So, we can still import the salmonella- or E. coli-infested spinach from Mexico, but we'll sell it as prepared fresh mixed salad greens so no one will ever know the difference. We can import chicken from melamine China but we'll cook it and put it in some other finished product so we don't have to mention China on the label. You can read the USDA's own release here, or the MSNBC story here.

This law specifically aids food processors and large agribusinesses. Surprise, surprise. And, I suppose, the inverse is true - that this law specifically targets small producers - but I prefer not to take the angle of emotionalism when I can take the angle of fact.

As Barney Frank and Chris Dodd, Congressional leaders whose campaign funds are essentially owned by financial interests, continue to spout off ideas how best to solve this "crisis" and then deflect criticism away from themselves onto corporate execs when the plans become unpopular, and as new government regulations on food safety are revealed to be a farce to aid large businesses, I ask this: when are we going to denounce this hypocrisy for what it is? When are we going to hold our governments and our elected officials responsible? Will the average citizen be willing to turn off his iPod, quit watching March Madness, quit being entertained for just a few minutes, put partisanism aside, engage his critical faculties potentially for the first time in years, take some measure of responsibility for himself, and ACT in our society as a citizen? (Oh, and you Canadians, this means you too - your government and its misguided policy-making is even more ubiquitous than the American, albeit, thankfully, much less corrupt.)

So that's the problem with "regulation" - that it always benefits some disproportionately, and there's always enough wiggle room while being completely within the regulation to create massive disturbances, whether in the world economy or in individuals' health.

What's the answer? Expect every citizen from the time of his or her childhood to take an active interest in our society and responsibility for his or her actions within it. Yeah, I know, about as likely to happen as fair policy coming out of Washington. I suppose that's a topic for another day.