Jim Palermo In today’s complex business environment, rules, laws, regulations — call them what you will — are essential. They provide guiding principles for businesses to operate within reasonable parameters. There is now intense public discussion about the need for more regulation to prevent a recurrence of the current recession. Will these regulations strengthen us domestically and enhance our ability to be a global economic force, or are we tying the hands of our free market society? When is enough regulation enough?

It is no secret that excessive regulation can weaken or even kill an industry. The financial markets are particularly sensitive to excessive scrutiny given that capital can flow from one regulatory jurisdiction to another with the speed of light. Regulation within this industry, if not undertaken with care, can have long lasting negative effects on creativity, innovation and the ability to remain competitive.

A study done by Peter Wallison, former general counsel of the U.S. Treasury, documented the ongoing destruction of the world’s premier financial market. His study found instances of congressional regulations, as well as government agency rulings that put huge financial burdens on U.S. firms. In many cases, legislation was poorly thought out and attempted to cure problems that were not problems. The Wallison study is a belated warning not only to U.S. policy makers, but to policy makers everywhere.

Could history repeat itself? It often does, and it is again. Government agencies are jockeying for power. Financial and insurance markets are targets for populist themes that will lead either to government takeover or senseless over-regulation. As you would expect, the findings of the Wallison study will be repeated. While we all acknowledge that mistakes have been made, it is imperative that we never forget what has made American business great. We are a free market society. To stifle that freedom is unAmerican.

Alexander Katkov The U.S. national economy is showing signs of recovery after the deep, long recession. Most economists and politicians name two main causes for the recession: the collapse of the real estate market after the housing market bubble burst in 2007, and the crisis of the financial system that benefited from financing the bubble. The “neo-liberal” strategy of economic growth adopted by the government in the 1980s, and the nation’s role as the largest consumer of cheap imported goods manufactured by multinationals outside the United States are macroeconomic reasons less broadly discussed.

To fight the recession the government used both fiscal and monetary mechanisms. The Emergency Economic Stabilization Act of 2008 and its Troubled Asset Relief Program (TARP) gave the Treasury $700 billion to buy mortgages and other financial instruments. But TARP was unable to recover lending to banks that received government money, and the recession deepened. In response, the American Recovery and Reinvestment Act added $787 billion to create jobs and promote investment and consumer spending. One year after the Recovery Act, we see positive consequences of its stimulus package: GDP is no longer falling and unemployment has dropped. In March, 162,000 jobs were created, a sign the market is recovering. With subsidies to state and municipal government, interest on municipal bonds has increased, bringing investors to finance local projects.

There is no doubt that government took the leading role in helping the economy. Recovery from such deep recession will take more than one year. Government economic policy is working and by the end of 2010, we will see more progress in job creation and economic growth.

Image left: Jim Palermo is executive in residence at JWU’s Charlotte Campus, and former executive vice president of Bank of America.

Image right: Alexander Katkov is an associate professor on JWU’s Providence Campus and an internationally recognized Russian economist.