Sunday, January 18, 2009


Kori Seki, an old classmate and good friend of mine who worked in the California housing market, has shared some of his thoughts on how we can revive the economy. In particular, he called for less restrictive building codes, pointing to old buildings that have lasted the test of time despite being built before the current array of strict building codes. He also argued for lowering property taxes to make it more affordable to build, buy, or own a home. These are certainly good points worth exploring in this economy.

One of the perennial challenges of a democracy and capitalism is balancing the need to protect people from unnecessary harms—including harms from themselves—through regulations like building codes, and trusting people—and the market—enough to refrain from overregulation. Similarly, on one hand we need taxes to fund important government spending, but we shouldn’t bite the hand that feeds by overtaxing a dwindling tax base.

At the risk of oversimplifying ideologies, I suppose that’s why there’s this constant tug between pro-regulation Democrats who want to fund health, education, and welfare, and fiscally conservative Republicans who want to deregulate as much as possible.

Let’s not forget, though, that a big cause of the current economic meltdown was the LACK of regulation in the financial markets.

It’s so hard to come up with a definitive answer that strikes the right balance. The new global market is making it incredibly difficult not only to be competitive, but also to understand what’s happening and where things are going. While I’m not a communist, Karl Marx certainly had it right when he predicted that capitalism run amuck would run society amuck.

Furthermore, while this quickly evolving market calls for flexible and adaptive governance, we must balance the need for swift action with the need for prudent deliberation. There’s no sense in rushing into yet another maelstrom. This need for balance between haste and prudence is also difficult to strike. But strike the balance we must.


Galvin Deleon Guerrero said...

Another good friend of mine and an old classmate, Craid Sonoda, commented on this as follows:

"Actually the cause of the current economic meltdown was not the lack of regulations but the pull back of lending requirements set up by a free market system that regulated themselves. The reduction in lending requirements was spearheaded by the Democrats, like Rep. Barnett Frank, who believed that such requirements were inherently racist because they prevented minorities from obtaining home financing in the same numbers as whites. So then credit score and income were not as important as the color of your skin in obtaining a home loan. More people could purchase homes and therefore home prices rose, demand increased, and the snowball started to roll."

See my reponse above.

Galvin Deleon Guerrero said...

Citing just one cause or finding one scapegoat for the subprime mortgage crisis might be too simplistic. It was, after all, both the Clinton AND the Bush administrations that wanted to increase home ownership. Generally speaking, though, the lack of regulation laid the foundation for the crisis. Even the Securities and Exchange Commission admitted that “failures in a voluntary supervision program for Wall Street’s largest investment banks had contributed to the global financial crisis” (NYT, 09.26.08).

Furthermore, it was Republican Senator Phil Gramm and Republican Representative James Leach who spearheaded the 1999 repeal of the Glass-Steagall Act, which for many years had safeguarded against conflicts of interest in the financial sector by separating commercial banks and investment banks. And while President Clinton signed off on the act’s repeal, President Bush made matters worse by leaning on Fannie Mae and Freddie Mac to issue high risk loans, going so far as to fire their chief regulator in 2003 for publishing a report that cautioned against such high risk loans. To be fair, though, Bush acknowledged that, “Our 21st century global economy remains regulated largely by outdated 20th century laws” (President Bush’s Address to the Nation, September 24, 2008).

As with many government initiatives, both liberal and conservative, everyone meant well. Everyone wanted to increase home ownership, and the housing boom was great for the economy. However, we must remember to always balance our demand for government action (or in this case, inaction) against the need for prudent deliberation. As Karl Marx so aptly put it, “The road to hell is paved with good intentions.” Alas, here we are, on this road trip of good intentions gone awry.