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Business columns: Deregulation is getting a bad rap

The real culprit behind the current economic crisis isn&rsquo;t deregulation; it&rsquo;s bad regulation, said Niall Ferguson in <em>The New York Times. </em>

Niall FergusonThe New York Times

The so-called experts failed to predict the current economic crisis, said Niall Ferguson, but they have quickly produced “a satisfying story about its origins.” Deregulation, they say confidently, was at fault. “There are just three problems with this story.” First, if regulation is so great, what explains the recessions and runaway inflation of the regulation-rich 1970s? Second, deregulation got rolling in 1980; if it’s to blame for a crisis that began in 2007, it should also “get some of the credit for the intervening growth.” And third, the supposedly superior European regulatory model failed to prevent a European banking crisis.

The real culprit isn’t deregulation; it’s bad regulation. Internationally agreed-upon standards for bank capital, for example, didn’t prevent banks from taking more risks than they could afford. And “the biggest blunder” was the Federal Reserve’s decision to measure—that is, regulate—inflation only by the prices of consumer goods and ignore inflated asset prices. That policy allowed the housing bubble to grow to world-wrecking proportions. The blame-deregulation story is  “convenient,” but it is also just plain wrong.

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