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Julie Menin Headshot

To Regulate or Not: A Shift in the Political Landscape

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The second debate between Barack Obama and John McCain was most notable, not for the negative tone the debate had, but rather for the clear picture it painted about the seismic shift that is about to undergo American politics. The debate clearly showed the fault lines between the Democratic and Republican parties on the key issue of the role of government in society. Can and should government be the source of help and a savior to the American people as Obama clearly believes or should government just get out of the way and let the free markets and private sector fend for themselves as McCain posits.

With our economic crisis at a fever pitch, this age old debate about the normative role of government has taken on new connotations. When Ronald Reagan swept into office after economic and foreign policy woes plagued the country in the 1970's, he painted a clear view of the dangers of government intervention. His rhetoric about a day when Americans would tell their children about when America had been free (a quote most recently garbled by Sarah Palin in the vice presidential debate), was a reference to the dangers of Medicare. His free market, laissez faire, trickle down economic approach was a seismic shift from the more interventionist Carter years.

Now with the economy teetering, the pendulum has shifted back in favor of government intervention as a result of years of failed policies of Republican deregulation. Just this past spring, McCain boasted in a Wall Street Journal article that he was "fundamentally a deregulator." This Republican push for deregulation can perhaps best be seen in Senator Phil Gramm's (who has for years served as an economic advisor to McCain) Gramm-Leach-Bliley Act of 1999, which removed the last vestiges of the Glass-Steagall Act which erased the Depression-era restrictions that had previously separated investment and commercial banks thus dividing banks that did more risky lending from those that engaged in more plain vanilla lending. Another example is the SEC's 2004 decision to allow investment banks to voluntary report to the SEC instead of requiring mandatory reporting which had been the previous requirement. Just last week, SEC Chairman Cox admitted that this voluntary program had failed and he not only was forced to cede authority over regulating investment banks to the Federal Reserve but he also recently asked Congress to regulate credit-default swaps. Perhaps the most glaring example of the Republican yearning to gut regulation was John McCain's proposal in the mid-1990's to have a moratorium on all new federal regulation (which mercifully did not pass.)

Thankfully, we now have a candidate who has tapped into the Zeitgeist of anger toward the government for failing to regulate the abuses that have plagued the financial markets. As seen in the debate last night, there are 3 key areas where Barack Obama wants to use government to come to Americans' aid. First, in the banking industry he blames the years of Republican deregulation for the economic crisis and plans to add more regulatory oversight to the financial sector. During the heat of the Democratic primary, he gave a speech calling for a regulatory overhaul to regulate investment banks, hedge funds, and mortgage brokers like commercial banks. Second, on the issue of health care, he wants to regulate the health care industry to prevent insurers from denying coverage on the basis of pre-existing conditions -- a problem that is currently denying millions of people health care and resulting in countless Americans going bankrupt because of the inability to pay for health care costs.

Third, Obama wants to use the tax code to redistribute wealth in a more equitable fashion by giving 95% of Americans a tax cut and raising taxes on those that make more than $200,000 individually or $250,000 per family. This is in sharp contrast to John McCain who recently wrote in a magazine article that he believes the health care system should be deregulated like the banking industry and that taxes should not be raised on anyone regardless of the inequities that exist among the American people.

As we face a crucial decision in one month in the election booth, it is time that we restore faith and belief in our American government and send a loud and clear message to Washington that the hands off, "government is bad" approach is not only deleterious to our country but more importantly is not the American way to let others fall through the cracks.