In high school I had an English teacher who was fond of saying “Locks are for honest people.” This odd phrase always raised questions among my fellow students, and the old man delighted in explaining that criminals simply use bolt cutters! Obviously, a lock provides little protection from a criminal armed with bolt cutters. On the other hand, “honest” people—people who might otherwise be tempted into mischief—are easily deterred by a lock. Later in life I figured out that this same principle applies to laws. There are some incredibly honest and sensible people who don’t need the constraint of laws to ensure good behavior, but most of us need things like speed limits and the threat of punishment to keep us at reasonable speeds on the highway and to encourage us to file our taxes.
Recently, it has become clear that this principle should also apply to corporate and financial regulations. Former Federal Reserve Bank Chairman Allan Greenspan famously admitted in the midst of the financial crash that he had been wrong in his assumption that bankers would self-regulate for their own good. Bankers, stockbrokers, mortgage lenders, insurance salesmen, and corporate executives of all stripes, just like other “honest” people need some form of constraint to keep them from slipping into unethical or criminal behavior. And herein lies the great failing of the Republican approach to business and finance.
Republicans tend to view regulations as burdensome constraints that hinder business and stifle economic growth. This view might be substantiated in extreme cases where there is an excess of regulation. (For example, I remember trying to cash a check in India a number of years ago and watching in dismay as nearly a dozen clerks spent a half hour scurrying around making entries by hand in as many different journals before I could receive my money). Unfortunately, politicians are adept at using extreme examples to discredit policies that they don’t like. Reagan very effectively picked on a couple of notable welfare cheats to characterize the entire welfare system as corrupt. But using an exception to promote the opposite is both disingenuous and foolish. Would anyone—even a Republican—use excesses of police violence to suggest that we should have no police at all, or the disgrace of Abu Ghraib as reason to disband the US Army?
But that is exactly the kind of thinking Republicans have applied to all functions of government related to taxes, business, and finance. Their creed is “hands off!” But the result has been catastrophic. Without the constraints of regulation and enforcement, many business executives have slipped over the ethical line to become con men, liars, and cheats. Credit card companies routinely use small print and bait and switch tactics to charge outrageous interest rates and impose unjustifiable fees and penalties. Mortgage brokers lie with impunity, making millions by talking unsophisticated homeowners into ruinous mortgages. CEOs bend accounting principles to create a false appearance of company value. Corporate board members rubber stamp policies and unbelievably excessive executive salaries and bonuses while being paid hundreds of thousands of dollars per year for their “wisdom and oversight.” Corporations, originally licensed strictly to serve the public good, act without conscience and without ramifications as they exploit workers and dump poisons into our rapidly deteriorating environment. Not every businessman is dishonest, of course, but the trend has been depressingly consistent.
Anyone who has watched “It’s a Wonderful Life” remembers how the charming town of Bedford Falls transforms into Pottersville, a horrid, squalid and depressed rural dump, when Mr. Potter, the conniving and miserly businessman, wrests control of the local bank from Jimmy Stewart’s character, George Bailey. It is a shocking scene that brings Bailey to his senses. His former friends, in the desperation of poverty, have become mean spirited drunks, gamblers and prostitutes; it’s only one step away from the wretched slums of Mumbai in "Slumdog Millionaire."
But Pottersville is the extreme Republican vision for America—the logical outcome for a nation where the rich are super rich, and everyone else is destitute and miserable. Is this a vision that any true American can embrace? I don’t think that even most Republicans could stomach such a perversion of the American Dream. Now that the Republican vision has had its day, and has been shown a dismal failure, it is time to redesign the way business and finance operate in America. We must provide sufficient regulations and enforcement to keep the world of business honest. Otherwise, even some “honest” men and women will stretch the rules, lose their moral compass, and eventually take themselves, our country, and the entire planet down the road to ruin.