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Mike hopes to see the world turned upside down through local communities banding together for social change, especially churches which have recognized the radical calling to be good news to the poor, to set free the prisoners and oppressed, and to become the social embodiment of the reign of God on earth as it is in heaven. He lives with the blessed memory of his wife, in Durham, NC, and has three adult children living in three different states. He also shares his life with the Mt. Level Missionary Baptist Church in Durham, the faculty and students of Shaw University Divinity School in Raleigh, NC, and the faithful fans of Duke and Baylor Basketball in his neighborhood.

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Saturday, January 10, 2009

Bailout 12: Whose Justice? Which Regulations?

The usual debates about economic policy end up gravitating toward "free market" solutions versus "government intervention." The assumption is that one side encourages regulation and the other deregulation. Dean Baker has pointed out repeatedly how this way of presenting the argument misleads, obscuring the ways that interests of different groups are served by policies. In an article from The Boston Review, he gives a more extensive argument with numerous helpful examples.

Baker claims that markets are always regulated, and most "free market" conservatives actually favor a certain kind of government regulation that protects the interests of the wealthy. He uses numerous examples, such as the cost of drugs, computer operating systems, and music protected by patent and copyright laws. These laws require extensive government involvement in industry and personal life, or regulation. He points out that arguments favoring changes in bankruptcy laws have focused on the irresponsible decisions of borrowers and created government intervention on behalf of creditors without imposing the same kind of penalties on the irresponsible decisions of the creditors who were not forced to loan money. While many industrial and service workers are unprotected from international competition, the government intervenes extensively to protect doctors, lawyers, and many other powerful professions from international competition, even though many of those regulations have nothing to do with protecting public health or order.

In relation to the recent bailout, he says that the so-called deregulation of the finance industry over recent decades failed to deregulate at a key point: it preserved the "to-big-to-fail" doctrine. Thus, as financial institutions, executives, investors, and other players took greater and greater risks on the assumption that the housing bubble would never crash, they knew that they would ultimately not be allowed to fail. After all of the carnage, those who reaped enormous profits during the boom (not just the paper profits, but the ones cashed in) get to keep their "earnings," while others (homeowners, pensioners, the uninsured, the unemployed, the taxpayers) will have to pay for the costs of their profligacy. This is a government intervention, not a free market. A purely free market solution of letting the banks fail, the insurance companies fail, and other giant corporations fail would probably have been worse. But the point is that the decision to bail out reveals that it was never a free market. It was always regulated.

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