As a result of the depressed economy the difference in income between whites and minorities have widened. While the most shrill will find this to be clear testament to the inherent racism in the GOP, the reality is that both Republicans and Democrats want and need a fair distribution of opportunity to maintain a stable society. Besides this has happened under a President that champions a ‘fairer’ society, with a compliant Congress for two years, who also controlled Congress for two years before his election.

Higher minimum wages causes lower employment at the lower end of the wage scale. If the minimum wage is increased during a strong economy this outcome will not become immediately visible, but its effects will be noticed at the next downturn. The minimum wage increased 24% from $5.85 to $7.25 in just two years (July of ‘07 to July of ’09). Now under our first black president, unemployment among blacks is as high as 19.2% and among black youth it is a staggering 41.3%.  Added friction costs to employment such as the health care bill and other regulations reduced employment further.  Job killing legislation has made the problem worse.  In 2009,  552,600  new businesses opened but 721,700 closed.

Going back to the Great Society of Lyndon Johnson we have spent enormously to eliminate poverty and all we have delivered is a huge dependent class requiring government subsidies that we can no longer afford, and a widening social gap that is the opposite of what anyone from either side of the aisle wants.

Government pressure to increase housing to the poor has led to a DECLINE in home ownership to the lowest level in 13 years as a result of a collapse in prices due to a growth that was fueled by forcing imprudent lending standards.  We hear that the problem was Wall Street greed, but this greed was less apparent in Canada where lending standards remained sound.

We have been told that deregulation under Bush caused the financial collapse. The repeal of the Glass-Steagall Act and the Commodity Futures Modernization Act, deregulating privately traded credit default swaps, (both signed by President Bill Clinton) may merit a second look. But we have a lot of regulatory agencies  and a lot of regulators. Perhaps the problem is not the absence of regulations but the quality of the regulations (and regulators) already in place.  The recent regulations requiring mortgages to be marked to market clearly were not considered in the light of the market collapse and this regulation caused the collapse to become much worse.  Imagine you have a mortgage that is performing as planned with no delinquency.  If the market collapses the value of this mortgage becomes zero even thought the borrower may have never missed a payment.

But the problem with regulations may be worse. Richard Bookstaber in A Demon of Our Own Design noted that the problem with many systemic failures is the complexity, and that regulations that have added to the complexity in fact may make the problems worse.

Private markets have failures and dealing with the failures is part of the system. In an effort to protect us from small failures we have created bigger failures.  Capitalism is at its best a competition of ideas and failure is way of dispensing with the bad ideas.

But bad ideas in government are enshrined and protected. Fraud in the private sector gets jail time. Ask Martha Stewart and Bernie Madoff. In government it gets you a generous retirement package, streets named in your honor, and too often re-election.

While regulations are deemed  to protect the consumer too often lobbyists are able to play the game to design regulations to benefit their constituencies rather than the voters.  The result of the growing climate of complexity and regulation is more lobbyists and rules that benefit the larger companies that have the infrastructure to manage the requirement. The end result is light bulbs at ten times the price that nobody wants,  and toilets that flush poorly.

Voters who push for quick solutions to real problems fail to see the outcome because they too often misstate the problem.  The current government solution is often a response to the failure of the last government solution.  The failure of the elected officials to accept any responsibility is why these problems are not getting solved.

There is no social problem so bad that an elitist designed government solution cannot make it worse.