Throwing Away the Rules

Corporate America's ideological assault on government regulation has undermined middle America's understanding of why these rules exist in the first place. It is true that some regulations have lived past their prime, protecting monopolies and stifling innovation. But the free-market ideologues of our era were not content to adjust those regulations to accommodate new economic realities. Instead, they preferred wholesale deregulation. The results are predictable.

The most spectacular market disaster of recent times -- the accounting and stock-analyst frauds that robbed large swaths of the middle class of its retirement savings and misallocated trillions of dollars of investment capital -- was a direct result of the deregulation of financial markets that began under Ronald Reagan and intensified during the Bill Clinton years. If you weaken the Securities and Exchange Commission (SEC) and limit investors' right to sue accountants and corporate managers for fraud, you get Arthur Andersen and Enron, Bernie Ebbers and WorldCom, Dennis Kozlowski and Tyco. If you repeal the Depression-era Glass-Steagall Act, you get a financial world where stock analysts publicly tout the products of investment banks while whispering to holders of big shares that it's time to sell.

Even after these events led to the most significant reregulatory legislation in decades, the Sarbanes-Oxley Act of 2002, the SEC failed to uncover the mutual-fund scandal in which fund managers systematically robbed 85 million ordinary customers in order to please their corporate clients. If it weren't for Eliot Spitzer, the crusading attorney general in New York, the public still wouldn't know about the fraud.

Men and women of moderate income who are trying to clamber up the economic ladder are frequently victimized by a Wall Street-financed predatory lending industry that caters to car and home buyers with poor credit ratings. Neighborhood-based payday lenders prey on lower-middle-class people who live from paycheck to paycheck. Yet the Bush administration's response -- issued earlier this year through the Treasury Department's Office of the Comptroller of the Currency -- is to seek rules preempting aggressive state regulators who have taken the lead in policing the industry. "This [is a] blatant attempt to shield banks from legitimate state law enforcement," says Connecticut Attorney General Richard Blumenthal.

While the deregulatory movement has been a bipartisan affair greased by campaign contributions, the assault of the Bush administration has taken it to a new level. Indeed, the headlines about the market failure may even suggest a way to challenge the prevailing orthodoxy in this election year.

Consider the meatpacking industry. Upton Sinclair's The Jungle led to an age of regulation a hundred years ago. Yet today's protectors of the nation's food supply, officials in the Agriculture Department, failed to prevent the first case of mad-cow disease from entering the United States. Within weeks of the incident, scientists on the inside admitted that the agency had ignored warnings that a spot inspection system was flawed -- and was an accident waiting to happen. Even today, Ann Veneman, the former meat-industry lobbyist who heads the agency, continues to drag her feet on implementing universal testing on animals heading for slaughter.

Meanwhile, officials with the Food and Drug Administration (FDA) have ignored a decade of mounting evidence of the dangers of over-the-counter stimulants. They only overcame industry pressure when a major-league ballplayer died last year after using ephedra. Meanwhile, the agency has pursued policies that could appear on a Big Pharma wish list: working to prevent senior citizens from importing cheaper Canadian drugs, opposing price controls or even price negotiation by Medicare, moving slowly on warning consumers about potentially dangerous drugs, and doing nothing to regulate the vacuous and confusing drug ads aimed directly at consumers.

At the Justice Department, Federal Trade Commission, and Federal Communications Commission (FCC), their watchdogs sit around as cable rates go up, telephone competition is stifled, and the ownership of media is concentrated. In fact, FCC Chairman Michael Powell has even relaxed rules concerning cross-ownership and media concentration -- despite widespread opposition to media conglomeration.

On the energy front, the effort by Vice President Dick Cheney to bend policy and regulations in an effort to promote an industry wish list -- renewed nuclear power, coal, oil drilling in pristine regions -- was too much even for Republicans. Unfortunately, the media's focus on that effort has meant not enough attention is being paid to the fleecing of the energy-buying public, a move that has been tacitly condoned by the Federal Energy Regulatory Commission (FERC).

The effects of energy deregulation are widespread and can be seen in a series of price gougings by oligarchies. And in recent months, we've experienced the California electricity crisis, skyrocketing natural-gas rates, and the current gasoline-price spike. In every sector where deregulation has been tried, energy pricing became unhinged from supply and demand, not more responsive to market forces as promised by its proponents. Instead of regulators policing prices, we have producers colluding with one another in an effort to withhold supply and drive up prices. Yet the political appointees to FERC won't admit that energy deregulation is a failure.

Don't forget the environment. Not only does the Bush administration work hard to meet the demands of corporations, it also uses Orwellian doublespeak to gull the public. Polls show overwhelming support among the middle class for policies to protect the environment and move America toward a clean-energy future. So the Bush administration's plan to log in national forests far from fire zones is called the Healthy Forests Initiative. Eliminating pollution controls on power plants becomes the Clear Skies Initiative. Defiling Alaska becomes Energy Independence.

Not surprisingly, the administration and its oil-industry patrons are alarmed by the growing public awareness that environmental and national-security issues are converging. Even the Pentagon has begun planning for worst-case scenarios, such as a coastal deluge caused at least in part by global warming. In last year's State of the Union address, the president spoke about a clean-fuel technology 20 to 50 years down the road. Meanwhile, he ignores things that could be done immediately to reduce greenhouse gases and diminish our dependence on Middle Eastern oil, such as raising the fuel-efficiency standard, eliminating the SUV-is-a-small-truck loophole, and providing tax credits for buying and producing hybrid vehicles.

When it can't bend the rules, the administration has sought to manipulate and degrade science in an effort to achieve dubious goals. The Union of Concerned Scientists has rounded up 60 scientists, including 20 Nobel Prize winners who served on advisory panels that date back as far back as the Eisenhower administration, to sign a public letter of protest. "I don't recall it ever being so blatant," Princeton University professor Val Fitch, who served under Richard Nixon and won the 1980 Nobel Prize for physics, told a news service. "It's just time after time after time, the facts have been distorted."

By manipulating science, the administration is catering to its political base of religious fundamentalists and corporate clients. For the religious right, the administration placed anti-abortion and anti-contraception opponents on an FDA advisory panel evaluating the scientific merits of an over-the-counter morning-after pill. Even after the committee gave the product a 23-to-4 nod, the FDA extended its review for 90 days to investigate potential adolescent use that might bolster opponents' charges that the pill promotes promiscuity.

Then, in February, the administration pushed out three prominent biologists who had opposed a restrictive stem-cell research policy on a bioethics panel headed by Leon Kass. In response, an array of scientists has attacked the panel for undercutting U.S. efforts in this medical arena.

The administration also pulled out of the Kyoto Protocol on global warming, citing industry-funded studies that claim scientific understanding of the phenomenon is "incomplete." A National Academies of Science review has debunked the charge and affirmed a scientific record on global warming that has been embraced by scientists worldwide.

Amid mounting concern that obesity will soon become the leading cause of death in the United States, Health and Human Services (HHS) Secretary Tommy Thompson has lectured the American people about their waistlines and told them to go on a diet. Behind the scenes, though, HHS officials have responded to concerns about sugars, beverages, processed foods, and restaurants by casting doubt on the link between obesity and addictions to soft drinks and fast food. When the World Health Organization issued a report embracing these linkages, for example, HHS officials sent a 28-page memo to Geneva attacking the report.

That's not all. An Agriculture Department official's warning about the meat-inspection system was ignored. A Center for Medicare and Medicaid Services official with realistic cost estimates for the prescription-drug bill was threatened with dismissal. And EPA enforcement chiefs resigned after the agency abandoned its suits against major polluters. Their protests are a warning to every professional whose career intersects with the government regulatory process: Expertise counts for nothing when arrayed against political and economic clout.

Regulation in the public interest once protected the middle class from short-term economic reversals. The cost-benefit crowd overstates the costs and understates the benefits in costs saved. Mark Cooper, the director of research at the Consumer Federation of America, which has done yeoman-like work on many of these issues, has compiled estimates: $90 billion from natural-gas price gouging, $40 billion in gasoline prices, $30 billion in cable rates.

The few crumbs of the Bush tax cut that went to middle-class households have been eaten up by the unregulated rip-offs that take place every month when folks pay their gas, electric, telephone, and cable-TV bills (not to mention health-insurance costs). That may not be a tax increase per se, but it drains the financial resources of average consumers and helps explain why in this profit-rich but jobless recovery, most middle-class Americans feel like they are losing ground.

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