Ever since the advent of the economic crisis all sides of the political spectrum have their convenient explanations of why it happened and who is to blame. Who’s wildly inaccurate version of reality will prevail? Only time will tell. What is certain, however, is that the current financial crisis is the result of a culmination of factors that cannot be summed up on one political label no matter how politicians or anybody else might like the issue simplified. The most compelling piece of evidence for this claim is that the current financial crisis has been brewing since the 1980s in a larger “super bubble” which the subprime mortgage crisis succeeded in bursting.
Since the 1980s, different sectors of the political spectrum have been swapping power in government and none of them succeeded in preventing the super bubble from growing. In America, both Republican and Democrat administrations succeeded in exacerbating and at best neglecting the looming financial crisis; Democrats through an ideological will to increase the number of homeowners and Republicans through their usual assumptions about the free market being self-regulating. Both regulatory and free market concepts have their merits, but many have fallen into the trap of believing that the financial crisis involves the relationship between the free market and government rather than invalid operative assumptions that predominant in both spheres. Changing the relationship between the free market and the government will only do so much. Ensuring more regulation or less government interference, the two polarities of an age old argument, is neither here nor there if both methods are inaccurate in the way they look at and manage the economy.
The free market side of the battle line is based on the idea that government interference invariably leads to more trouble. As evidence of this claim, the Smoot-Hawley Tariff is often cited which exacerbated the depression by making protectionism a pillar of international economic relations through levying astronomical tariffs on foreign goods. Naturally, other countries retaliated in response to the American tariff and global free trade was bought to a halt. The problem with this approach involves two assumptions 1) that regulation can only come from the government to the detriment of the private sphere and 2) that once the market has failed it maintains a capacity to exist without assistance. Regarding the first point, government is an inappropriate regulatory entity for a number of reasons mostly to do with the fact politicians have a knack for advocating what gets them votes rather than what benefits society. Economic policy revolves around the private sphere so in the private sphere regulators should remain but with specific measures in place that keep these regulators non-partisan and not subservient to mere profit motives. Regarding the second, it is too often assumed that once a market has severely deteriorated, the imbalance can be corrected by relying exclusively on the free market. What this neglects, however, is that once the market is in a position that necessitates government intervention or else suffer dire consequences, this is a market failure. Market failures cannot be corrected through the free market because the market is no longer functioning in a way that makes that feasible. When faced with a choice between the nationalization of industry and the loss of millions of jobs, for example, the free market cannot be reasonably relied upon to deliver the most optimal outcome. This second assumption usually comes part and parcel with the misconception that unfair hegemonies can only rise from external intervention and not the market itself. This, however, is untrue. Regulatory agencies should exist with a view to preserving the prospect of the free market for everybody, not just corporate oligarchs but individual consumers, small businesses, and those with aspirations to start their own businesses. The government, however, is not suitable to do this because of the fact it’s in a different sphere. This is the root of the illogic behind the regulatory side of the battle line. Whenever we hear about policing the free market, socialism falls close to mind. Of course, social democracy has made triumphs in Europe but not all political cultures, particularly that of the United States, is cut out for it. First of all because the United States has a strong tradition of keeping the government out the lives of individual citizens, i.e. small government. The United States’ size in both economic and territorial terms opens the question as to whether or not it would be effective for a traditionally small government to suddenly intervene in the affairs of a massive economy or give rise to an effectively non-partisan regulatory framework.

The bailout of the banks and other key financial institutions has not come with sufficient reform to prevent such a reoccurrence because the governments both in the United States and elsewhere simply do not have the framework or the paradigms in place for market regulation. Even if regulatory bodies were greatly strengthened, they would still be outsiders looking in and the issue of how to manifest effective enforcement comes into play. For example, a major regulatory violation of the banks in their twilight hours was a complete disregard for liquidity requirements - the percentage of the total assets readily accessible. Regulatory bodies were not laughable before the crisis set in but how would such agencies enforce something as intimate to a bank as its liquidity thresholds? How would they detect such malpractices? More importantly, how would reprimands come about? These questions have been at best feebly answered by every side of the political spectrum and surprisingly almost every major political faction is completely hung up on whether or not economic solutions will affront their ideologies rather than how to actually create an adequate response to such problems. In America Democrats seem concerned with bailing out companies and Republicans seem preoccupied with costs. Neither side is devoting sufficient time to the question: how will the global economic system insulate itself against such future crises? Perhaps this is just a symptom of preoccupation with the short term consequences of the economic fallout. Sooner or later, however, the question of how to prevent such catastrophe in the future will need to be answered and the partisanship of all sides of the political spectrum leaves observers wondering whether this will actually happen. It is a highly likely scenario that the economic crisis will gradually dissipate, so gradual as to avoid the collective sigh of relief, and all talk about improving the financial regulatory framework will disappear with the crisis. Until the next one.
The partisanship of the regulation vs. deregulation argument has probably cost more economically than either side has blamed the other for. The false dichotomy of this repetitive war hits one’s head with the dull thud of a junior debate team arguing over the merits of school uniforms. The free market cannot, in this day and age, exist without proper impartial oversight. Because without it, the free market wouldn’t be free. Freedom is not free. The regulatory framework is the cost we pay for existing in a rational and fair market economy just the same as we sacrifice doing whatever we want for the sake of living in a society of law and order. By the same token, a free market economy is not free when it is subject to constant government interference or the partisan politics of party interest. Rather than choosing between being oppressed by the government or corporate oligarchies, why not find an alternative to both extremes?

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