The following post is by Dealbreaker reader and commenter Infinite Guest.
In his early experiments, Harry Harlow gave infant monkeys a choice between a chicken-wire "mother" who gave milk and a terrycloth "mother" who did not. Finding that the monkeys preferred the terrycloth mother, he concluded, contrary to conventional wisdom at the time, that the relationship of a primate infant with its mother rests more upon comfort than upon food. Dr. Harlow's early experiments tested a clear hypothesis. They were controlled. They produced interesting results, useful to our understanding of human psychology. The early experiments influenced a generation of research psychologists and arguably changed the way we raise our children today. But Dr. Harlow didn't stop there. For the next twenty years, he continued experimenting with monkeys. He tested their social development for progressively more abstract traits, under varying conditions of privation, progressively more severe. His later experiments comprised torturing monkeys as an end in itself.
If any inference ought to be drawn from example of Dr. Harlow's later experiments, it's this: people can be sadistic. Intelligent, respectable, industrious people can be sadistic. Granted resources and authority, but unrestrained by laws or even normal ethical considerations, they can be dangerously sadistic.
It's no great leap of the imagination to extrapolate from monkeys to better-dressed primates. Nor is it any great leap from psychologists to economists. Paul Volcker, to name just one example, is by all accounts an intelligent man, an industrious man. He has the respect of his peers, his colleagues and successors. Some of his early experiments, both at Treasury and especially as Chairman of the Federal Reserve, were well-thought out, with a clear and immediate purpose in mind, and produced results that no doubt benefited society, results that persist in benefiting us today. For his early work, we owe Mr. Volcker a debt of gratitude.
As a person, Paul Volcker has the right to his opinion, and a citizen of the United States, Paul Volcker has the right to free speech, as all citizens do. If he wants to contribute to the discussion his vision of economic Utopia, no matter how far behind the times it may be, we are richer for hearing it -- just as we are richer for having read Hobbes, or Marx, or Keynes. We are fortunate to have the benefit of Paul Volcker's thinking.
Even as a person of influence, a friend of the President, an intellectual among Democrats, a member and a leader of prominent groups whose domain is the study of economics, Mr. Volcker, despite his decrepitude, unquestionably has a lot to offer the current generation, who lack the benefit of his personal experience in surviving and addressing economically difficult times. But if breaking up the banks is the best advice he has to offer, then Mr. Volcker has no place advising the President.
The arguments have been made, without any real counterargument, that the so-called "Volcker rule" is irrelevant, that if anything, it would increase rather than decrease systemic risk, that it would be non-economic overall; and yet the Volcker rule will not quite die. The real danger, much greater in my mind but largely undiscussed, is that the Volcker rule undermines the fundamental principles of liberal democracy.
Because of synergy, a combined bank and brokerage is inherently more valuable than its constituent businesses. Forcing the breakup of such institutions amounts to stealing property from the shareholders: stealing it, and destroying it. A democratic government does not steal from its citizens. In fact, so long as we citizens obey the law, our government has no right to harass us at all.
Congress will eventually pass, and President Obama will eventually sign into law, some re-regulation of the heavily-regulated financial sector. New regulation will impose additional cost on the sector. The cost may be justified if regulation helps to support our freedom to pursue wealth, our general safety and security, the continuance of our way of life. Regulation is worthwhile when it is well-conceived, properly constrained, and serves some worthwhile purpose. Regulation including the Volcker rule, or anything like it, is not. It's no better than torturing monkeys.