It is often stated that the government’s role is primarily to aid the private sector in creating growth. This sentiment is often championed by the right wing, cornering the debate as a matter of anti-capitalist regulatory burden versus the all-American free market. Although compelling, prioritizing private sector growth is sometimes at odds with the well-being of the public. When the government prioritizes the private sector above public health, safety, and education, it is creating an environment that benefits a small number of individuals, whether this is intended or not.
Before even attempting to address this, I think the foremost consideration is the role of government versus the role of the private sector. It is the role of the government to ensure that the largest number of people are benefiting from both the private and public sectors; the government has a role in ensuring pareto optimality across all socioeconomic demographics – hence, welfare programs like Social Security, food stamps, etc. But as a country with an historically strong private sector and a society that views capitalism as a sacrosanct part of American life, the U.S. government has often struggled to achieve true widespread benefit because of the immense cultural, political, and financial pressures coming from private industry to legislate in ways that optimize private sector growth. This growth sometimes occurs at the detriment of the public good, however, when the marginal social cost of private output is not accounted for.
One example that I am thinking of as I write this is the coal industry. While it is generally common knowledge that coal is an increasingly archaic energy source, in West Virginia, the coal industry has done a tremendous job of pushing back on government regulation to the detriment of WV’s citizens, its landscape, and its drinking water. In 2014, over 300,000 people lost access to clean drinking water for several days after over 7,500 gallons of toxic coal ash was dumped into the Elk River. In the aftermath of this catastrophe, the coal industry successfully staved off the EPA’s regulatory efforts, convincing the WV governor to sign into law a bill that prevents coal companies from being sued for clean water violations, unless the violations are specifically defined in their state permits. This same law also relaxed the amount of aluminum allowed in West Virginians’ drinking water. Ironically called the “Creating Coal Jobs and Safety Act of 2015”, this law neither created jobs nor enhanced safety.
West Virginia’s actions demonstrate that in many cases, government serves its purpose when its environmental protection arm isn’t bound to the standards of maintaining economic growth, and the public sector is not responsible for maintaining the adequacy of the private sector. At its purest, laissez-faire capitalism is sometimes cruel, a Darwinistic mechanism that thrives in spite of environmental protection regulations. Adding to this, a free market’s development and growth depends on the abilities of small, agile, forward-thinking solution makers, with or without large, antiquated industries that are propped up by governmental assistance. Yet as the American experiment has evolved through wars, recessions, and tribulations, we’ve cultivated a system that operates outside the bounds of capitalism if, and only if, its purpose serves the greater benefit of the population.
Per the democratic framework established by the Founding Fathers, the government’s primary focus should be ensuring the well-being of the largest amount of people. While every regulatory decision results in both a cost and a benefit, the optimal decision should be that which provides a benefit to the largest number of people. In West Virginia’s case, preventing industry from dumping toxic coal ash into its citizens’ drinking water may slightly increase the costs of production, but it comes to the widespread benefit of 300,000+ individuals whose consumption of safe drinking water is arguably a human right.
Similarly, the Economic Reinvestment and Recovery Act of 2008, while largely unpopular, was a necessary decision that prevented countless jobs from being lost and an infinite array of other widespread consequences.
It should go without saying that the world’s largest economy should not go unregulated in the face of increasing domestic and global economic instability. The current global financial infrastructure is both delicate and increasingly volatile, with the onslaught of changes that have occurred in our global economy since the 1970s. The expansion of free trade (both inevitable and largely beneficial, in my opinion) combined with the constant fluctuations in currencies put us in a situation where the US, like many other large economies, are very sensitive to the movements of the global financial system. There is a growing need for the apolitical work that the International Monetary Fund does in regulating member countries’ economies, as well as the work that the Federal Reserve Board does in measuring and maintaining stability in the US financial system. These institutions serve as an economic engine, an insurance policy against social or political upheaval, and an isolated chamber in which economic health is the sole concern.
A few months ago, one of my favorite podcasts, Knowledge@Wharton, interviewed the author of a book I would like to read soon called The Architecture of Collapse, in which author Mauro F. Gullen described the increasing importance of global financial regulation and prudence as we become more interconnected. Dr. Gullen describes three things that he thinks have contributed to the over-leveraged state of our global economy: the rise in portfolio investment, the growth in cross-border banking, and currency trading. These things in particular deserve our attention, as well as the aforementioned potentially catastrophic environmental issues that are more than worthy of government intervention, as the social costs of inaction are rising.