The End of Deregulation

This morning on NPR Daniel Schorr made a comment that I thought deserved a response. Each weekend he is asked to give his analysis of the week's events. NPR treats him as a distinguished senior journalist. I've always thought of him as one of the first generation of leftist journalists with an agenda - he is just older now. Schorr argued that with the testimony of Alan Greenspan this week before congress that we were witnessing the "end of deregulation." (BY the way Mr. Schorr, the author is not AIN Rand. He made a reference to a key figure in Greenspan's early intellectual life - but seemed unable to pronounce Ayn Rand's name correctly.)

Most people mark the beginning of our most recent period of deregulation in the late 1970s, during the Carter Administration. Perhaps the largest first two steps, the elimination of the Civil Aeronautics Board (which had regulated the price of airline tickets) and the reductions of interstate trucking regulations. Both of those deregulatory trends are unlikely to be reversed. One could also date about that time, a court decision which reduced the power of the monopoly previously operated by AT&T. That one seems unlikely to be re-established anytime soon.

If that was not what he was talking about was it financial deregulation? In the late 1970s and early 1980s two trends emerged which could be described as deregulation. They were the freeing up of financial institutions to pay competitive rates for savings, even short term savings, deposits. Those created something called interest bearing checking (first called NOW - or Negotiated Order of Withdrawal) accounts. The second was the restructuring of the home loan market so that savings and loans (which had traditionally been limited to certain kinds of deposits and investments) were allowed more flexibility. That deregulation, which also included some changes in deposit limits, helped to cause a) an earlier crisis in housing and b) the demise of one class of financial institutions (savings and loans). Does Mr. Schorr seriously think we will go back to those kinds of limited purpose financial institutions?

Clearly Mr. Greenspan was a devotee of the libertarian writer Ayn Rand. But his time as fed chair showed an uneven commitment to any consistent principle of deregulation. I saw the congressional response to his testimony as something to the effect of "Gee, we used to fawn over you because you would give us your time and now we have some problems and want to blame you for us trusting your Svengali like pronouncements too much." Schorr's Washington bias showed through today, just as Greenspan's did during his tenure as fed chair.

There are two kinds of regulation; those kinds that impose rules of practice and those which require clarity of disclosure. Schorr clearly would favor an intrusive federal system that would attempt to regulate financial transactions. As we have seen in the last 40 years - with lower rates for phones, air travel, and trucking and lots of new options in all sorts of markets - the benefits from reducing the intrusive role of federal regulation and improving the standards for disclosure have provided huge benefits to us all. Schorr does not make the distinction but let's hope policy makers do.