Things that are obvious are not necessarily true, and many things that are true are not all obvious. – Dr. Joseph LeDoux, Neuroscientist
The political campaigns and the upcoming elections make this a crazy time of year. This is when politicians and political parties promise to lower our taxes, create high paying jobs, take care of the poor and elderly, promise to improve our educational system, reduce our burdensome regulations, cut the fat and reduce the size of government. They also promise affordable housing, better infrastructure, reduced traffic congestion, and improved public safety.
While the campaign promises sound good, we must ask how often they are kept. Do we, or should we, keep a scorecard examining what promises were kept and which ones were not? Maybe we should keep score, but maybe we should also examine the promises themselves. The ideas of lower tax rates, fewer regulations, and having private industry take over government functions may seem obvious, but are they? We have been told this for so long, we don’t question it. My perspective is that taxes, regulations, and the preference for private industry and small government resemble a three-legged stool. While each leg is somewhat independent, each affects the stability of the other two.
The first leg of the stool, lowering taxes, sounds good. It does take money to run a government, however, and that money comes from taxes. So when candidates for office promise to lower taxes, maybe we should ask if government services will be reduced or eliminated and if so, which ones. I like my Social Security and Medicare! If no such eliminations or reductions are contemplated, politicians often say they will find the needed funds elsewhere. Elsewhere, however, is a mythical place that so often, no one seems to find.
Similarly, it is normal for politicians to promise to “cut the fat” to make up for reduced taxes; however, once elected, they never seem to find the fat. Since they never define the fat, I wonder if the fat includes programs, efficiency or both. I am not advocating that we should never have a tax cut, but we must understand its consequences: cutting taxes means we must eliminate services, be more efficient, or spend more money to borrow money to run the government, or defer our bills.
The second leg of the stool is reduction of regulations. Just like lowering taxes, it sounds good, but is it? The promise is always that business will flourish and produce more goods and services if we pare away regulations. While this sounds plausible, is it actually true? One example of the clear value of some regulations can be found in the environmental arena. I have heard politicians say that we should eliminate some clean air and water regulations, because our air and water are clean. But obviously, it is because of these regulations that our air and water are cleaner today than 40 years ago. The 1100 Superfund sites (places so polluted that one can’t live there) in our country were created in those days, before environmental regulations were put on the books.
In the banking arena too, many argue in favor of fewer regulations. Consider the financial meltdown just ten years ago that almost caused another Great Depression. Many financial experts believe that crisis was related to a reduction in banking regulations. To assess this belief, we have to look back to 1933, during the Great Depression, when the federal government passed the Glass-Steagall Banking Act. Before the Depression, banks were allowed to combine banking and speculation. For example, subprime mortgages could be bundled in derivatives that became worthless. (Sound familiar?) This combination is thought to have been a significant cause of the Depression. Glass-Steagall separated banking activity from speculation until 1999, when the government eliminated the banking/speculation provision. This paved the way for the reappearance of subprime mortgages and derivatives. Sure enough, just nine years later, in 2008, the banking industry went into free-fall in the absence of the regulation provided by the Glass-Steagall Act.
So in fact, cutting or easing regulations is not always a good thing. It seems obvious that government usually creates regulations in an attempt to solve real problems. Yet I also understand that some regulations are extraneous and even unnecessary. My point is simply that it is incumbent upon us to examine the reasons for these regulations before we eliminate them.
The third leg of the stool is the belief that private industry is more efficient than government. I’m sure that is true – sometimes. However, there are instances when laws like Glass-Steagall are needed to ensure that private industry (the banks in that instance) does not bankrupt us all. The banking industry illustrates very well that sometimes private industry, especially in the absence of regulations, can do more harm than good.
Another example is health care. Many believe that private health care is superior to government- run programs. Private insurance companies are supposed to be more efficient than the government. The problem is that until the passage of the “Affordable Care Act,” insurance companies often dropped customers when they got sick, or when they just got old. It was a business decision, since the sick and elderly cost so much. In fact, the federal government created Medicare in 1965, because medical insurance companies dropped customers when they turned 65 years of age. The government was not just being generous when it created Medicare; rather, it stepped in when private industry refused to offer the service.
I think we should examine the promises that our politicians make, just to see what happens when they are kept. Tax cuts are nice, provided we can afford them. Similarly, some politicians say that tax cuts will spur the economy, but history tells another story. For example, when President Clinton raised taxes, the economy grew and we had a balanced budget for two years. Reducing burdensome regulations can be a good thing, provided the regulations are unnecessary. Private industry does play a major role in our country, as does our government. To think that private industry would always be better than government, however, is not logical. We know that some private industry without government oversight can cripple our country.
“Some things are too important to be left to the private sector.” – George Galloway, former member of British Parliament