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Politicians get the true cause of the recession all wrong

Lawmakers and the media seem to have dubbed greed as the primary evil responsible for the downfall of the American economy. Insurance companies are routinely accused of greed, as are credit card companies and networks, investment banks, CEOs and so on. In these times of economic hardship, when the nation’s economy is in desperate need of examination and revision, our federal policy makers are eager to put checks on greed in order to help fix the economy. However, the truth is that in a capitalist economy, profits aren’t a sign of greed, they are a sign that a given company’s business tactics are successful within the competitive system in which that company operates. If lawmakers think that specific companies are making too much money, then the problem isn’t corporate greed, it’s that there simply isn’t enough competition to keep those players from making excessive profits. The President and Congress are determined to use their legislative powers to bail out the U.S. economy, but they ought to be concentrating their efforts not on greed, but instead on the lack of competition in the marketplace.

Instead, lawmakers have been continuously critiquing the profits of large companies, like those in the health insurance and credit card industries, attributing their successes to greed and greed alone. The business practices of these companies are then regulated by numerous redundant agencies, creating enormous and costly bureaucracies that bog down the system and drive up prices. In addition, they also create a system in which small companies cannot afford to compete with larger companies, and where companies operating within a single state are hampered by the regulatory costs and procedures that are associated with going national.

What we need is legislation that will increase competition; not laws that prevent competitors from entering into the market. Instead of having 50 state regulatory agencies all doing the same thing, as is the case in the insurance industry, a single federal regulator would help to keep costs down and inspire more competition. Obviously, excessive regulation does not engender a spirit of competition. If competition as a regulating force were embraced with greater fervor, the system would begin to correct itself—capitalism requires competition and when it is regulated from outside rather than from within, it begins to resemble socialism.

Lawmakers would do well to look at the FCC and its response to exclusive deals between mobile phone companies and manufacturers. By contemplating regulation that restricts exclusivity, the FCC will increase competition by enabling small carriers to offer the same phones that large carriers do. Additionally, allowing customers to keep their phone number as they move from one carrier to another creates a market in which carriers are forced to compete with one another. If lawmakers must intervene, let them intervene in this way so as to insure maximum competition in any industry.

The underlying cause, which has fed the media’s and Capitol Hill’s perception of companies being greedy, is a capitalist economy that has been operating without the competition that is needed to curb excesses. The capitalist marketplace offers rewards to businesses that have successful plans—this isn’t greed, it’s just the nature of the system. The regulatory force that keeps those rewards in check is competition and so it is to competition, and not to competition-defeating regulation, that lawmakers should turn to get the system back under control.

Comments

  • Gollum 4 years ago

    The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 authorizes a bank chartered in one U.S. State to establish branches in one or more of the other 49 States (the "host States") while remaining under the supervision of its home State regulator.

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