But Regulation IS a Good Thing
"Do to others as you would have them do to you." (Luke 6:31 NIV)
Henry Paulson, Secretary of the Treasury and Chief Architect of the Wall Street Bailout, is dazed and confused. At least, that's the conclusion one can't help but arrive at after reading the recent two part story on him run by the Washington Post. The Post portrays Paulson as flip-flopping on his previous economic beliefs and making it up as he goes, all while aggregating an immense amount of power. Apparently many of Paulson's former colleagues are shocked by his quick reversal from a hard-nosed advocate of deregulation to a proponent of massive government intervention. One hedge fund manager mused, "What happened to the Hank Paulson we knew?"
What will be the outcome of Paulson's efforts to inject massive governmental involvement in the financial markets? Even he doesn't claim to know. But one thing is clear: Paulson's understanding of the markets he now seeks to short circuit is flawed because he ignores the importance of social ethics.
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The term "market" has been bandied about often of late by members of the chattering class in Washington, D.C. and New York City. It is a "catch-phrase" for libertarians who put all their faith in unregulated markets and for liberals who want government to control the markets. What both sides fail to recognize is that the "market" is nothing more than the sum of individual human transactions in the marketplace. The responsibility for our current economic meltdown does not lie with some amorphous "market system" or a few obscure, but powerful, CEOs. No, the real responsibility lies with the myriad transactions of the millions of people who make up our economy.
In the aggregate, these transactions involve buying, selling, and trading. Each individual transaction is fraught will moral implications. All parties to a transaction have a moral responsibility to deal fairly and honestly with each other. The failure to live up to this responsibility on a massive scale has led to the crisis that now befuddles Secretary Paulson and threatens to be America's economic undoing.
It is easy to get bogged down in the complex details of possible "fix it" plans, but the root of our economic troubles is clear: People are selfish and greedy—they often ignore the good of their fellow man in pursuit of their own economic gain. Old-fashioned dishonesty in business gave birth to our current disaster.
We should not be surprised by rampant selfishness and dishonesty. The Founders were well aware of human corruption when they were establishing our political system. James Madison understood the nature of man, declaring, "If men were angels, no government would be necessary." Since men are quite obviously not angels, they require the help of government in maintaining justice and fairness. But no economic or political system can produce justice if the culture as a whole ceases to care about these virtues. No system can be superimposed on culture which will magically produce justice out of corruption. If the hearts of the people turn from justice and they refuse to embrace the Golden Rule, no governmental system can check or balance that corruption. Once the broad-based cultural rot of individualism and moral relativism sets in, justice and honesty will crumble and our markets will not be the only thing to suffer.
The best check on injustice is to be found in the shared values of local society. When the people who make up communities generally agree on proper standards of conduct, the few who would violate those standards feel the opprobrium of the entire community. Often the force of shame itself can restrain avarice. As the sense of local, shared morality degenerates, however, the external force of government becomes necessary to fill the void. When selfishness and relativism tear apart our social fabric, chaos ensues. And since people will not live in chaos, they inevitably look to the government to reestablish order.
The late theologian Harold O.J. Brown understood this point well when he wrote, "We may say quite simply, the greater the individual responsibility shown, the less the need for government controls. Where responsibility fades into nothingness, controls become absolute. To the extent that citizens assume responsibility in society, the government can leave them free from elaborate controls." People need order, and that order will either come from within or without.
For too long in our Republic, too many Americans accepted no-holds-barred, laissez-faire business dealings. They refused to regulate themselves. "Let the buyer beware" became the mantra, and we are seeing the fallout from dishonesty and selfishness. Now those same people are crying for the government to save them. Financial players like Secretary Paulson, who once touted absolute deregulation, now want to impose stringent controls. People like Paulson seem to be without guiding moral principles. They drift like a ship without a rudder. In the end, their only goal is their own self-preservation.
A truly free market requires honesty and transparency on all sides of any transaction. Unwritten cultural rules are the bastion and preserver of freedom. Self-regulation by the participants is the best way to preserve a free market. But when community standards disappear, government inevitably steps in to quell the chaos. Neither markets nor people can truly be free unless they govern themselves. To the extent they fail to do so, government will have to do it for them.
