George Will: Always Right, Occasionally Correct

George Will on Romney

George Will

More than two years ago in the LA Progressive,  I remarked upon how George Will (and, on that occasion, David Brooks as well) had actually said something that made some sense. Brooks does that often enough that he’s regarded with suspicion by hard-core conservatives. Will, however, remains in good standing.   Yet he has once again made an argument that is so obviously sensible that one wonders why it has not been our policy all along.

I refer to “Too Big to Maintain?” In which he argues that a Romney administration should adopt a policy of breaking up financial institutions that are “too big to fail” (TBTF). In banking jargon, they are called “systemically important financial institutions.”  Will adopts the thinking of Richard Fisher, president of the Dallas Federal Reserve Bank, who argues that such institutions are “too dangerous to permit.”

Five financial institutions now account for over 60 percent of banking assets, and 60 percent of the gross domestic product.  Such entities are too complex for anyone to fully understand, and so big that they command government support whenever they encounter difficulties.

Both Republicans and Democrats are now so beholden to Wall Street that they are unwilling to be serious about this problem.  Reagan, Clinton, both Bushes, and Obama all drew their economic decision-makers and advisers from the major financial institutions, so it is scarcely surprising that none has been aggressive in regulating the financial sector, much less breaking it up.  The Dodd-Frank financial regulation law, passed in 2010, is the most ambitious attempt to regulate the financial sector in decades, but it really does nothing to threaten the dominance of the same big banks that brought on the Great Recession.

Will, however, cites Milton Friedman’s insistence that capitalism is a system of profit and loss, and sees TBTF as subverting that by socializing losses and enhancing the profits of the beneficiaries of the policy.  TBTF, he says, is “a double moral disaster: it creates moral hazard by encouraging risky behavior, and it delegitimizes capitalism by validating public cynicism.”

He also cites Andrew Jackson’s question when he vetoed the charter of the Second Bank of the United States: “Should the government be complicit in protecting — and by doing so, enlarging — huge economic interests?”

Bush the Younger, of course, bought into the TBTF logic at the outset of the Great Recession, but at that point he had little choice.  Obama accepted the same logic when he bailed out the auto industry, but at least he saved a million jobs, at a time when private finance was unavailable due to the implosion of the banks.  Romney criticizes Obama for spending taxpayer money on that bailout, but, like Bush II, he would have had to do the same had he been president.

Will thinks that Romney should forthrightly propose breaking up the TBTF banks, but that goes squarely against Romney’s own career, as well as the current Republican stance opposing all government regulation and relying on the free market to solve all problems.

john peelerObama, if he could free himself of the Wall Street crowd, is the likelier buyer of Will’s prescription.  He is already rhetorically in favor of more regulation; it is but a short step to returning to the antitrust policies that broke up the monopolies and imposed discipline on the banks.  All that has been lost in the last three decades.

Not only our economy depends on this shift: the obscenity of unregulated campaign finance shows that our democracy itself depends on getting rid of TBTF.

John Peeler

Posted: Friday, 19 October 2012

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