subservient Congress had already begun doing more of the bidding of big financial institutions, but following Reagan’s election, those banks were given far more leeway. Antitrust enforcement that had kept some corporate goliaths in check now slowed way down.
A smiling President Richard Nixon shakes hands with new Supreme Court Justice Lewis Powell, while Supreme Court Justice William Rehnquist looks on.
The Reagan administration proudly embraced the idea of “deregulation,” as if financial and corporate regulations were the biggest problems faced by Americans—rather than the wrongs those regulations were designed to prevent. From Reagan’s perspective, it was far more important to protect a corporate giant from the government than it was to protect a customer, investor, or small competitor from the actions of a corporate giant. Regulation became the new enemy. Forget exploding gas tanks, cancer-causing chemicals in the water supply, or drugs that caused birth defects—regulation was proclaimed to be the real danger in America. From the 1980s onward, “deregulation” became a sacred tenet of all conservatives, a mantra that can be translated to mean: let corporate America do more of whatever corporate America wants to do.
Trickle-down economics ushered in a new approach to the economy. Instead of using the tools of government to help level the playing field for all Americans, government should let those at the top call the shots and, in the words of Ronald Reagan, rely on the “magic of the marketplace” to create “spectacular broad-based economic progress.”
Ooh, magic marketplaces. No need for rules or regulators—just put your faith in giant corporations.
Even now, President Trump serves up the same tired old recipe. He promises to “unleash” corporations to create more jobs by, among other things, reducing regulations. True to his word, he picked an Environmental Protection Agency director who fights against rules that protect our air and water, and a Secretary of Labor opposed to rules that protect our workforce.
Oh yes, it is very clear from Donald Trump’s cabinet that he thinks the virtues of deregulation know no limits. Indeed, Trump delivered this across-the-board approach to making America great again: “We’re getting rid of regulations which goes hand in hand with the lowering of the taxes.”
Let the big corporations do whatever they want. What could possibly go wrong?
The enthusiastic corporate sponsorship of conservative economics should have been the tip-off. The embrace of trickle-down economics was nothing more than a brazen ploy to ensure that this country would be run so that the rich and powerful can get richer and more powerful.
The concept of trickle-down economics was bad enough. But it also had an evil twin: the idea that government was the enemy. After Roosevelt harnessed the federal government to work for millions of Americans, powerful corporations pushed back with the idea that government—not corporations—was the enemy. Many helping hands heaped ridicule on government, and America’s poor corporations were cast as its victims.
As with any movement, the idea couldn’t have taken hold if there hadn’t been some truth to back it up. Let’s face it: some of the government’s rules are stupid, and some rules are stupidly enforced. Anyone who has ever tried to erect a new building or open a new business and along the way run into a series of codes and inspections and petty bureaucrats may be ready to sign on with a politician who promises “smaller government.”
But chanting “deregulation” at the federal level didn’t actually fix many problems for small businesses. Mostly, it created huge giveaways that only giant companies could take advantage of. Repealing Glass-Steagall in 1999 helped a handful of gigantic banks get even more gigantic, but it didn’t do much for the community banks trying to compete with them. The same can be said about the decision not to regulate risky new financial instruments. Government’s hands-off approach to this new danger fattened profits for giant banks while it bankrupted families. Regulatory rollback and tax breaks for large corporations help large corporations, but they don’t help anyone else.
For decades now, Republicans have been feeding small businesses the same lines about how the GOP is the party of small government. But after promising the moon, they sure haven’t delivered much. Maybe that’s because most of the benefit they deliver is scooped up by the big guys.
Despite pretty promises, Republicans have delivered a rigged system that lets giant companies and multimillionaires treat the American economy like a candy store that’s open only for them. What does the couple running a great little restaurant in Somerville, Massachusetts, get from federal rollbacks? Nothing—which is about what most families and small businesses get.
WHEN THE COPS WORK FOR THE CROOKS
Trickle-down ideology started with raw power: the powerful devised ways to exercise even more power. With fewer regulators to say no, big corporations began venturing into territory that had long been closed to them. Wall Street firms showed the way. For years they had chafed under the restrictions put in place in the 1930s, and they had fought back from the beginning. But now, one battle at a time, they began to win. Big banks were turned loose to load up on risks. Those risks boosted both revenues and profitability, and—no surprise—the executives cashed their paychecks, pocketed their bonuses, and didn’t ask too many questions.
The jump in profitability was like a cocaine high—it felt amazing while it lasted, but it was potentially deadly. Risks always come back to bite someone. The CEOs knew that, but they expected they could grab their money and get out, and the drug would keep working. And if it all came crashing down, everyone else, including investors, customers, and taxpayers, would be left holding the bag.
A banking scandal that erupted in the late 1980s should have sounded a warning. The country’s savings and loans associations, once sleepy little consumer banks that specialized in mortgage lending, were largely deregulated in 1982. They immediately started growing, offering bigger and bigger loans and many more new products. In just three years, the S&Ls jumped 50 percent in size, and speculators began buying them up as if each one was a goose that could lay golden eggs. But no bubble lasts forever, and soon many of the high-flying, poorly regulated S&Ls became insolvent. When the bubble popped, more than a thousand of the nation’s 3,200 S&Ls were shut down. And, in a show of real accountability, government regulators criminally prosecuted more than a thousand bank executives.
Because the S&Ls were relatively small and because the problems rolled from region to region over time, they didn’t crash the entire economy. But to keep the system functioning and keep depositors from losing any money, U.S. taxpayers laid out about $132 billion. Yes, $132 billion. Stop for a minute and think about that pile of money: in 1995, when the last S&L was shuttered, the federal government had funneled more to these financial institutions than it had spent on education, job training, veterans’ benefits, social services, and transportation combined.
At this point, alarms should have been sounding everywhere—shrieking sirens and clanging bells. The pattern was unmistakable: (1) bank
