The high cost of free markets

A lack of regulation invites oil spills and financial collapse
By EDITORIAL  |  May 19, 2010

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Free markets are not free. They always carry a cost. Sooner or later, the many get saddled with the price tag for the gains of the few. This is the case in the painful drama of ecological and economic ruin being played out on the nation’s Southern shores as millions of barrels of oil pollute the Gulf of Mexico and threaten the fragile Florida Keys. The lack of foresight by British Petroleum and its subcontractors may be morally repugnant and intellectually indefensible, but was still 100 percent legal. That BP still acted within the confines of the law should be a crime in itself.

In the case of the Gulf Coast BP oil catastrophe, everyone from commercial fishermen to beachfront-property owners will pay a price — not to mention anyone who cares about the environment. The extent of the damage done by this much oil in the water is as yet unknowable; we are still watching to see how it acts in the deep water, how much will travel the Gulf Stream to the East Coast, and the effect of “tar balls” washing ashore. Bear in mind, scientists are still discovering, 20 years later, long-term impacts of the Exxon Valdez spill on the Alaska coast.

The mechanism for preventing these problems is government regulation. Without it, of course corporations will push to the limits to maximize their profits, with no regard to consequences beyond their bottom lines.

This is what ultimately is so frustrating about the BP oil disaster: the companies involved may have done little or nothing illegal, or even necessarily wrong, from their perspective, since regulation of their industry was so lax. In fact, given the opportunity, there is no reason to think those responsible would do anything different.

In 1990, the government limited oil companies’ liability to a mere pittance of $75 million — about one day’s worth of BP’s profits, or two hours’ worth of its net revenues. On Tuesday, a law that would have raised that liability from $75 million to $10 billion was blocked by the oil interests, led by Republicans.

The same goes for Goldman Sachs and the other companies that created the financial-industry disaster — they’ve shown no willingness to correct their actions.

The lack of regulations — of institutions, their complicated financial instruments, and their leverage positions — allowed elite investment gurus to operate a high-wire act that, when it fell, took the entire economy down. Yet regulatory reform — gutted and weakened — has only now, 18 months later, inched its way to the floor of the US Senate.

If our lawmakers are this tepid in response to obvious monstrosities, what hope do we have of them acting to rein in the less-blatant examples of under-regulated industry?

For the last 30 years, Republicans — and plenty of Democrats bought off by big industry — have backed away from both creating and enforcing reasonable market regulations.

Those who favor regulation get labeled as anti-capitalist. But that is a preposterous canard: all markets require parameters in which to thrive.

Fifty or 60 years ago, it was a political death sentence to be labeled “soft on Communism.” Today, spineless officials fear the charge that they are not sufficiently pro-business. To be pro-business is to oppose all regulation, even rules that would prevent oil spills or bank meltdowns.

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