Monday, July 21, 2008

The Return of Regulation

Have you noticed it too? There seems to be a lot more room for proposing big-government policies these days.

It seems that just as there are no atheists in foxholes, there are no libertarians in a financial crisis.

In the New Zealand context this raises some interesting political questions. Would one of the major parties desert the market-driven policy consensus of the last two decades? Crazy surely? Colin Espiner reminded us that it is possible (perhaps)

So what has Labour got up its sleeve? Has it completely forgotten its socialist roots? How about a return to subsidised milk, as proposed by the Green Party? A daily bread allowance? Cut-price petrol and power? Laughable, right? Well, in recent history, yes, but we used to have them all. Many nations - including OECD countries such as France - still do.

There’s little doubt Labour will be punished in the polls for the way Kiwis are now hurting, and I’m not saying it shouldn’t be. But it would be nice to know the alternative.

There is quite a lot going on in the US and Australia that suggests a greater willingness on the part of governments of all stripes to intervene.

For the sake of narrative lets say I noticed it first in the Atlantic's recent 'Ideas Issue'. Idea number seven? The Return of Regulation. Clive Crook notices the regulation of mortgage backed securities prompted by an earlier phase of the current sub-prime mortgage crisis.

In the 1980s, Ronald Reagan and Margaret Thatcher made deregulation a guiding theme of economic policy in America and Britain, and much of the world followed along. ...

Now a major rethink is under way. Regulatory failure in banking and “shadow banking” is widely seen—even by onetime proponents of the light touch—as a main cause of the subprime-mortgage meltdown. A Republican administration hitherto committed to deregulation is calling a halt, and in mortgage-lending is proposing new rules.

This is before the Fannie Mae, Freddie Mac sort-of bailout. Some observers even seem to regard nationalisation of the GSEs as a possibility. That would be the notion that the US government should own half the mortgages in that country, 5 trillion dollars worth!

In Australia the new government is pretty keen on nation building as Paul Kelly discussed after the budget.

A strange, unresolved mix of modernism and tradition stamps the Rudd Government. They are proud of their surplus and dance merrily on the grave of Keynesian economics. But they love to intervene, to build, to correct market failures and to design new methods and institutions for Labor's grand designs. They are a synthesis of Chifley and Paul Keating.

(Chifley's government lost power attempting to nationalise the banking industry!)

We all know that the Clark government has been trying to protect the odd "strategic asset" in New Zealand. You may have missed the fact that the Rudd government has effectively decided that mines could well be strategic assets and told a bunch of Chinese businesses that if they didn't want lose face they should quietly rescind their applications to purchase while the government decides its policy.

AT least 10 Chinese companies have withdrawn foreign investment applications to buy into Australian resources companies after pressure from the Rudd Government.

The main issue seems to arise if a company owned by a foreign government is to take a controlling stake, particularly if that government happens to be Chinese.

THE Rudd Government is understood to be preparing a new foreign investment regime that would limit state-owned corporations from taking technical control of Australian companies.

Over the weekend NYT columnist David Brooks shocked his conservative confreres by declaring a new activist age. Of course he believes that it should be Republican activism but that's my point, everyone is onto it.

Once you look for it there are signs everywhere of a sea change on this kind of issue.

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