Megan McArdle has been spending a lot of time pushing the idea that no one is allowed to suggest that there is any sense in which the financial crisis has implications for evaluating existing ideologies in American politics. No one was at fault. No one was asleep at the wheel. No one's ideas were worse than anyone else's ideas. Or maybe everyone was at fault, asleep at the wheel, gripped by wild notions. Six of one, half dozen of the other. (Strange that I don't remember any conservatives or libertarians or centrist Democrats being shy about taking credit for the awesome prosperity their ideas had brought us when times were good. Indeed, I remember Megan lauding the tremendous prosperity unleashed by the new financial instruments! Must have been a simpler time.) There's truth to the argument that a lot is getting lost in the search for relevant political scapegoats (Phil Gramm was not very important. The CRA stuff is a joke). But she's trying to short-circuit relevant conversations. She easily knocks down the assertions that the crisis was all Alan Greenspan's fault. The system is bigger than any one Randian. Alan Greenspan, however, was the guy able to regulate derivatives and subprime loans, and the bureaucrat holding the lever that controlled interest rates. He had a role, as he'll tell you himself. Whether he succeeded is an important question, as there's much for Bernanke to learn from his performance, and there remains the constant question of what Greenspan's role will be going forward (McCain continually swears to put him on a fix-it commission). Meanwhile anyone who thinks this crisis was the result of Gramm is a fool (though Gramm didn't help). Luckily, no one actually thinks that. Rather, the liberal narrative here is that 30 years of governance by committed deregulators made something of a difference. It wasn't the bills Phil Gramm passed, or even the regulations folks knocked down in the 90s. It's that various political actors colluded to effectively freeze the regulatory state. Actors like, well, Alan Greenspan and Phil Gramm and, yes, Robert Rubin, mounted a successful effort to prevent the regulatory state from modernizing and growing in step with the financial industry. As such, the areas of finance that failed worst generally had no oversight around them. Commercial banks, which were well-regulated, seemed to fare rather better. There's a strong argument that the crisis demonstrates the consequences that follow when government abandons its responsibility to give continual attention to the regulatory structure, and leaves existing laws to age and new sectors to operate unchecked. On the other hand, there are tradeoffs to regulation, and to popping bubbles, and to doing the other things some liberals wanted to do. Whether we've struck the appropriate balance between the two is an important question, particularly given that many of the same folks who steered the economy in recent decades are vying to be put back in charge. The post hoc evaluation of their ideas is actually quite important.
