It Is Honorable for Government to Help People Act More Honorably

The New York Times has an excellent article today on Alan Greenspan in relation to the current financial crisis. It provides food for thought about government regulation at any level.

Essentially, Greenspan believes that the cause of the crisis is Wall Street decisionmakers not acting honorably. However, the decision to regulate, like the decision to pass ethics codes, is to guide people to act more honorably and penalize those who do not.

Greenspan's basic problem is that he ideologically opposes government intervention that in any way holds back free enterprise. He believes that the market makes better decisions than governments. He also prefers individuals over collectives. However, both governments and markets are collectives and, in both cases, a small number of individuals can make all the difference. In the case of financial regulation, he essentially made his policy government's policy by insisting so confidently that he was right.

In fact, he was wrong. He got the first half of the problem right: derivatives lessen risk by spreading it. What he got wrong, because of his misplaced faith in those with the most power in the market, is ignoring the fact that people who feel safer take greater risks. It doesn't make them dishonorable, it just makes them human. There is an easy way to stop this: require more capital to be held to make the greater risk-taking safer. That's what regulation is for. But you can't rationally consider this alternative when your ideology makes the alternative evil.

Government is not evil, it is the way a community makes its decisions. It's imperfect, just like every collective and every individual. But it works reasonably well when its leaders act reasonably, and when people don't let one man's arrogance blind them to their obligations.

I don't mean to say that Greenspan is totally responsible, only more responsible than anyone else. He had lots of help on Wall Street, on Main Street, in the Clinton and Bush cabinets, and in Congress.

But local governments need to learn the lesson: there is nothing wrong with helping people to act more responsibly, to prevent them from harming others or, in the case of ethics, using government for their own benefit. And there is nothing wrong with government per se. The free market is a fiction, government is not. The free market takes no responsibility for anything, government has an obligation to. The free market is like a child, as we can see now, and government has to clean up the mess. Again and again.

Rules and regulations are okay, even if opponents, who have something to lose from them or just hate them ideologically, call them socialist or unnecessary. Ethics codes are okay, even if officials insist they're acting totally in the public interest. What is not okay is putting ideology, or self-interest, before one's obligations to the public.

Robert Wechsler
Director of Research-Retired, City Ethics

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