A dispatch for the “Arguing the World” blog at Dissent magazine.
Published in Dissent.
As far as I can tell, there’s nothing particularly radical about Elizabeth Warren, the Harvard law professor who has helped to design the new Consumer Financial Protection Bureau.
On July 21 this bureau will officially become the federal government’s newest agency, and Warren’s proposed appointment to head it has become highly politicized. The battle over the nomination is currently making headlines, and Warren is again being called to testify before Congress. As Joe Nocera—a new columnist at the New York Times—puts it, she “will return to the torture chamber known as the House Committee on Oversight and Government Reform on July 14.”
Progressive groups such as the AFL-CIO and the Progressive Change Campaign Committee are pushing President Obama to use a recess appointment to give Warren the job. Meanwhile, Republicans in the Senate have united against her nomination. In fact, forty-four of forty-seven of them have declared that they will approve no nominee whatsoever to head the new bureau, unless its powers are scaled back.
So what is all the fuss about? There’s a lot of “new sheriff in town” and “speak softly and carry a big stick” rhetoric surrounding Warren. But the agency she has helped design strikes me as quite moderate. It will do things like make sure that people can be informed consumers (which economists ostensibly regard as something vital to an efficient market economy) by translating the fine print of credit card agreements into regular English.
During the financial crisis, those on the left saw the collapse of the banking system as evidence of the deep-rooted flaws of a capitalist system that, in desperation, had turned to over-reliance on the financial sector to eke out profits. There was some talk about nationalizing the banks, and this line of discussion was not totally outlandish, given that many of the country’s largest institutions required massive public intervention to stay afloat. Even on the right, there was plenty of anger about the federal bailout and proclamations that no business should be “too big to fail.” Those with a libertarian streak promoted the idea that, even if it meant that the towers of Wall Street would crumble, the market should be allowed to carry out its process of “creative destruction.”
In contrast, the “responsible” right-wing and Washington-centrist position was that, clearly, there were some abuses and excesses that needed to be reigned in, but overall the system worked just fine, and business, after getting back on its feet, should continue more-or-less as usual.
It seems to me that this latter stance is basically what Warren would represent: putting checks on a few of the most egregious abuses of the banking and credit card industries, but otherwise letting American capitalism continue to chug along as it sees fit.
I think the first lesson that any businessperson should be taking from the massive downturn of the past few years is that we’ve let finance run too far afield, and that the guys at the banks are messing things up for everybody else. How can the rest of America make any money when Wall Street is bringing the entire system to its knees? It doesn’t seem fair. But instead, the Republicans and the Chamber of Commerce—claiming to represent all businesses from the titans down to “the local butcher“—are standing in solidarity against any regulation to promote the stable functioning of American capitalism.
To me, it’s a pretty clear case of capitalists shooting themselves in the foot.
In his latest article in the New Yorker, financial-page columnist James Surowiecki does a nice job making this argument. He writes that:
“Warren is far from the anti-capitalist radical that her critics (and some of her supporters) suppose. Indeed, an empowered C.F.P.B. could actually be a boon to business.
While some bankers accept the need for consumer protection, they maintain that the C.F.P.B. will go too far and end up strangling financial innovation. But, over the past century or so, new regulatory initiatives have inevitably been greeted with predictions of doom from the very businesses they eventually helped. Meatpackers hated the Meat Inspection Act of 1906, but it rescued the industry from the aftereffects of the publication of The Jungle. Wall Street said that the creation of the S.E.C. would demolish stock trading, but the commission helped make the U.S. the world’s most liquid and trusted stock market. And bankers thought that the F.D.I.C. would sabotage their industry, but it transformed it by effectively ending bank runs. History suggests that business doesn’t always know what’s good for it. And, at a time when Americans profoundly distrust the financial industry, a Warren-led C.F.P.B. could turn out to be the friend that the banks never knew they needed.”
Opposition to Warren is another example of business crying wolf about regulation. It should not be taken seriously, even as representing the best interests of capitalism.