Should-Read: Brink Lindsey and Steven M. Teles: The Regulatory Subsidy for Extreme Leverage: A Reply to Mike Konczal

Should-Read: Definitely an ongoing debate to follow: Brink Lindsey and Steven M. Teles: The Regulatory Subsidy for Extreme Leverage: A Reply to Mike Konczal: “We do not argue—although Konczal suggests we do—that the problem with financial regulation is a dearth of ‘economic liberty’…

…that can be remedied by “getting government out of the way.” The modern state and modern finance have been inextricably connected since the origins of both. Accordingly, our analytical starting point is to take as given an active government role in overseeing the financial sector. The question, therefore, is entirely one of choosing which institutional arrangements the state uses to facilitate and structure financial markets, with a view to the different effects of various possible arrangements on stability, growth, and inequality. Our contention is that the United States has adopted—typically at the behest of the financial industry— institutional arrangements that generate high system instability while redistributing income and wealth upwards. Nothing in our argument should be understood to suggest that the problem is “too much regulation” and the answer is “deregulation,” for the simple reason that, at the margin where policy change occurs, those terms are basically meaningless. Reducing regulation on the one hand (say, by reducing limits on leverage) may just increase the role of the state (through bailouts) on the other…