Commentary

Political Perils of Overregulation

The big news last week was that Wall Street banks and finance houses are toppling into New York’s East River and the financial splash threatens to drown the nation’s economy. But the really big news is that economic populism in this country has taken a turn toward less government intervention rather than more.

It was a horrendous week for the finance industry. The only encouraging sign is the American voter’s growing awareness that bigger government is not the answer to the current crisis.

This assertion obviously flies in the face of all received wisdom about populist instincts, especially during tough economic times. All weekend, the media has been in an uproar over the “unregulated” nature of the finance industry. The coverage’s underlying assumption is that voters are similarly concerned that the government was asleep at the regulatory wheel over the past few years. Hence, the Obama campaign has enthusiastically led the call for a vast new regulatory embrace of the finance sector and implicitly backed the $85 billion government bailout of mega-insurer American International Group (AIG).

As a liberal Democrat, Sen. Barack Obama is seen as comfortably articulating a pro-regulation position that dovetails nicely with voters’ populist tendencies on this issue.

Sen. John McCain, meanwhile, is portrayed as desperately playing catch-up on the regulatory front.

First, Mr. McCain is criticized for his long-standing opposition to onerous regulation of the financial sector. Then, he is criticized for being a Johnny-come-lately to the cause of greater government oversight of Wall Street’s new generation of robber barons. Implicit in both the media’s praise of Mr. Obama and its excoriation of Mr. McCain is the assumption that bailouts and more regulation are what voters want.

The stubborn little fact, however, is that is not the case - not if the very latest polling data is anywhere close to reflecting popular sentiment on the headline issue of the day.

A stunning Rasmussen Reports survey conducted last week found that only 7 percent of voters think the federal government should use taxpayer funds to keep a large financial institution solvent. Sixty-five percent say let the company file for bankruptcy. These surprising numbers are generally the same among Republican, Democratic and independent voters.

[M]ost voters want our national politicians to remember that they are, first and foremost, taxpayers.”

Another new Rasmussen survey conducted midweek found 49 percent of voters say they are more worried that the federal government will do too much, rather than not enough, to “solve” the financial crisis.

Only 36 percent are more worried about the government doing too little. As for those voters not affiliated with either major party, 54 percent are more worried about too much government intervention, while 28 percent take the opposite view. These independent voters will decide the outcome of the presidential election.

The American people do want change, and they want it now. But the problem for Mr. Obama and now for Mr. McCain is that they want a very specific kind of change. They want the federal government to stop spending money like teenagers on an unsupervised road trip with their parents’ credit card.

Most immediately, most voters want our national politicians to remember that they are, first and foremost, taxpayers.

Depressingly, they are now taxpayers potentially on the hook for over $800 billion more than they were a week ago. This startling fact has captured their attention like little else this election year.

The week’s very gloomy economic headlines were a potential dagger in the electoral heart of the McCain campaign. But middle-class voters are recognizing that bigger government does not simply mean, to paraphrase Joe Biden, “patriot” (that is, higher) taxes for “the rich.” Bigger government also means hanging middle-class taxpayers out to dry in response to others’ political and investment mistakes. A candidate who understood this simple truth would be well on his way to winning the White House.

Patrick Basham directs the Democracy Institute and is a Cato Institute adjunct scholar.