At the end of his bracing critique of Wall Street bailouts, lax financial regulation, and the state of corporate governance, Eliot Spitzer raises a critical issue: “Being able to diagnose a problem is a whole lot easier than mustering the will to fix it.” Can we expect the government to act to re-engineer the nation’s financial architecture? We start with this question and offer two perspectives—on whether Americans are likely to support aggressive new regulation of financial markets and on what the potential barriers to reform in Congress may be. Indeed, political and institutional hurdles for lawmakers are high and could put serious reform out of reach.
Most Americans do not have detailed knowledge of the financial crisis or fully elaborated attitudes about potential solutions. The public also manifests considerable ambivalence about government regulation, consistently opposing regulation in general terms, while supporting it in specific cases.
In a January 2010 Gallup poll, just over half of respondents were “worried” about “too much regulation of business by the government,” while just over a third worried about insufficient regulation. Similarly, half believed that government should be “less involved in regulating business,” compared to a quarter who thought government should be more involved (the rest thought “things are about right the way they are”). And although Republicans were much more likely than Democrats to oppose government involvement, only a third of Democrats favored more government involvement. CNN polling suggests that opposition to “government regulation of business and industry” has increased since the beginning of the financial crisis.
Yet, perhaps reflecting the “angry populism” Spitzer cites, majorities in recent surveys support regulations that would limit the size and activities of the largest banks, create a special tax on large bonuses, and take steps to limit CEO pay at large companies. Thus, despite ostensible opposition to regulation of business, majorities do support various regulations on particular institutions and large businesses.
This ambivalence vis-à-vis regulation might be a product of views on business itself. Most Americans clearly support American business. In a 2007 Pew survey, more than 70 percent of respondents agreed that “the strength of this country today is mostly based on the success of American business.” But such sentiments may conceal more than they reveal. The public makes distinctions within the business world. In a December 2009 Bloomberg poll, 92 percent of respondents had very or mostly favorable views of small businesses, but many fewer expressed favor toward insurance companies (36 percent), corporate executives (29 percent), and Wall Street executives (18 percent). The public also disapproves of certain business practices. In separate 2007 surveys, a majority of the public said that corporate profits were too high and that the CEOs of large companies were paid too much.
Nor has the public much love for financial institutions. In a January 2010 ABC/Washington Post poll, 79 percent of respondents said that “banks and other financial institutions” deserved “a great deal” or “a good amount” of “blame . . . for the country’s economic situation.” So it is no surprise that the Wall Street bailout in September 2008 remains deeply unpopular: in the December Bloomberg poll, 64 percent of respondents said that “last year’s government intervention to give money to big banks and investment firms” was “a bad idea.” Of course, the framing of a question affects how people respond. In an October 2009 Time poll, more respondents said that the government did “what was necessary to avoid a bigger crisis” (60 percent) than said that the government “favored Wall Street financial institutions over the needs of people like [themselves]” (32 percent). But concerns are still quite real: a January CBS News poll reported that 72 percent of those surveyed believe that “big investors and people who work on Wall Street” had benefited the most from the bailout.
Policymakers routinely escape punishment at the polls even when they are out of step with majority sentiment.
Public opinion, then, suggests a “permissive consensus”: majorities oppose certain business practices and, in the case of the financial crisis, blame financial institutions. Majorities of Americans are willing to regulate businesses implicated in the financial crisis even as most oppose government regulation of business in generic terms. When it comes to implementing these regulations, average citizens—who have typically not thought deeply about policy options—will take their cues from elected leaders. Policymakers have considerable discretion in pursuing the kinds of regulations Spitzer proposes.
Those leaders also confront several challenges.
First, they disagree over how future crises could and should be averted. Tweaking proposals from the Obama administration, the House passed a bill expanding the powers of the Federal Reserve, empowering regulators to dissolve institutions that are too big to fail, and creating new protections on consumer financial products. In the Senate, bipartisan pairs of senators are working—with varying degrees of progress—to devise a different approach, one that might strip the Fed of its supervisory powers. Were the bipartisan approach to succeed, 60 votes to break off a filibuster might be within reach. But if bipartisan talks fall apart, then those votes may prove elusive. And even if a Senate bill were to pass, reconciling it with the House bill would not be easy, given the disparate approaches taken by the two chambers. Supermajority rules and bicameral differences—as much as political will—typically impose steep barriers to major policy change.
Second, the intense partisan polarization of recent years could derail new legislation, even if lawmakers agree on a policy. Lack of Republican cooperation has complicated the Democrats’ agenda and stymied many of the president’s initiatives. Republicans are voting in lock-step opposition to Democrats’ proposals even when bipartisanship seems possible: though Republicans in committee supported some of the House bill’s provisions, when the bill made it to the House floor, it garnered not a single GOP vote. Senate Republicans may also decide that they benefit politically from opposing reform. This would halt any legislation unless Democrats could persuade some Republicans to defect and vote in favor of bringing a measure to the floor.
Given that a majority of Americans support reforms to the financial industry, wouldn’t opposing reform be costly? Not necessarily. Policymakers routinely escape punishment when they are out of step with majority sentiment. In fact, one of Spitzer’s examples of “core values”—the minimum wage—demonstrates this directly. As Princeton political scientist Larry M. Bartels documents in Unequal Democracy, most Americans—upwards of 80 percent, in some surveys—support an increase in the federal minimum wage. But actual increases are few and far between, and the minimum wage has declined substantially in real-dollar terms.
The financial crisis may prove a more salient issue than the minimum wage, making Americans more attentive to congressional action or inaction, but this remains to be seen. Americans are typically more attuned to the performance of the economy than to the specifics of policies that could affect it.