"Financial Reform’s Missing Advocates"
The big problem with financial regulatory reform is that as best I can tell nobody’s for it. Nobody, that it, in the sense of interest group advocates ready to lean on members of congress, make specific demands, hold feet to the fire, etc. Everybody’s for it in a broad general sense and it’s popular, but that tends to lead to a situation in which interest groups poke it full of holes until we’re left with swiss cheese.
At last week’s Mystery Treasury Meeting I asked about this, and the senior officials confirmed that they basically don’t see themselves as having any big-time interest-group advocates on their side. I asked specifically, shouldn’t non-financial businesses have an interest in preventing future economic meltdowns, and the officials said they would think so but unfortunately the business community isn’t rallying to their side. My boss Faiz pointed out that the Chamber of Commerce is specifically helping to mobilize against regulation.
Justin Fox puzzles this over and concludes that it may be a principle-agent problem:
When will we hear nonfinancial business leaders making these arguments? Well, maybe never, and not just because of the conflicted nature of the big business groups. A frothy and powerful financial sector is probably bad news for business as a whole, but it’s generally good news for top executives. The spectacular boom in CEO pay that began in the early 1990s has been very much a Wall-Street-driven phenomenon. So it’s not really in the short-term interest of individual corporate executives to crack down on the financial sector.
Kevin Drum sees logrolling:
An airline executive might believe that financial sector reform would benefit the airline industry, but he also knows that someday he’s going to want help fighting some kind of government regulation of the airline industry. The best way to ensure this is to stick together and oppose government regulation no matter which sector it’s aimed at.
You see the same thing at work in healthcare. Most big corporations would benefit from healthcare reform — in fact, they’d benefit from a root-and-branch government takeover of healthcare — but ideologically they don’t like the idea, and in any case they don’t want to abandon their fellows in the healthcare industry. This kind of tribalism broke down a bit this time around, but not a lot. For the most part, corporate executives either stayed on the sidelines or actively opposed healthcare reform. In the corporate world, it’s all for one and one for all.
For my part, though, I wouldn’t understate the importance of pure ideology-driven class solidarity. Recall the famous Larry Bartels finding that income growth rates are higher for every decile of the income distribution when Democrats are in the White House, though the gap for high-income folks is much smaller than for low-income folks:
Which is a shorthand way of saying that though progressives policies are better for the poor and the middle class, they’re also better for rich people, but by and large rich people don’t care and are ideologically drawn to conservative policies and conservative ideology.