It’s important for citizens to understand the philosophical approaches their government officials use in carrying out their public policy functions. Fortunately, Larry Summers spelled out his approach to financial regulation, and Marc Ambinder discusses it here.
I have a slightly different view from Ambinder’s. If I’m reading this correctly, we can summerize the core features of Larry’s regulatory philosophy as follows:
O. I will actively promote rules that create the conditions in 1 through 5.
1. Once I’m in charge, we will not interfere in the market until the horses are out of the barn and cause massive damage to the neighborhood.
2. In response, our goal will be to make the barn owner whole for his and his creditors’ losses and not hold him, his overseers, or ourselves accountable for leaving the barn door open even though escaping horses was entirely predictable.
3. We’ll require the American people to pay most of the costs resulting from our combined, willful negligence. This is called, hazardous morality.
4. Our overriding policy is to leave to barn owners the decisions about what to do with their barn doors, even though horses escaping pose systemic risks to the entire neighborhood.
5. When that fails again, as it inevitably will, repeat steps 1-4.
6. When I’m finished here, I hope to become a barn owner.
It’s hard to determine who posed a greater systemic risk to the American economy. Was it Larry Summers, Bob Rubin and Phil Gramm? Or maybe the team of Ronald Reagan and Arthur Laffer? Or any President and Alan Greenspan? Or . . . Nevermind.