Raymond Richman - Jesse Richman - Howard Richman
Richmans' Trade and Taxes Blog
The Economist Declares the US Economy Is Being Suffocated By Over-regulation
We would like to call your attention to an editorial in The Economistof Feb. 18, 2012 entitled “Over-regulated America” and sub-titled, “The home of laissez-faire is being suffocated by excessive and badly written regulations.” It cites inter aliathe Dodd-Frank law of 2010 as “far too complex and becoming more so. At 848 pages…”. Yes, you read that right! “Worse, every other page demands that regulators fill in further detail. Some of these clarifications are hundreds of pages long. Just one bit, the ‘Volcker rule’, which aims to curb risky proprietary trading by banks, includes 383 questions that break down into 1,420 subquestions.” And “.. of the 400 rules in mandates, only 93 have been finalized. So financial firms in America must prepare to comply with a law that is partly unintelligible and partly unknowable.”
As for Obamacare, “Every hour spent treating a patient in America creates at least 30 minutes of paper-work , and often a whole hour. Next year the number of federally mandated categories of illness and injury for which hospitals may claim reimbursement will rise from 18,000 to 140,000.” And a study for the Small Business Administration “found that regulations in general add $10.585 in costs per employee.” The Economist is to be congratulated for calling attention to the problem of over-regulation that is so harmful to the American economy.
Unfortunately, The Economist is not against government regulations but only to their complexity. It approves the objectives of Dodd-Frank saying, “Its aim was noble: to prevent another financial crisis. Its strategy was sensible, too: to improve transparency, stop banks from taking excessive risks, prevent abusive financial practices and end ‘too big to fail’ by authorizing regulators to seize any big tottering financial firm and wind it down.”
We disagree. We don’t know Dodd-Frank’s real motives. The chances that they were noble, given their histories, is highly unlikely. First of all Dodd, Frank and their ilk caused the financial crisis by forcing banks and other mortgage lenders to abandon traditional requirements on borrowers for substantial equity. The regulations may have been designed to distract attention from their roles in causing the crisis.
It was by and large a subprime mortgage and the collapse of a housing bubble crisis. The crisis had its origin in Pres. Carter’s failure to veto the Community Investment Act of 1977. Subsequent amendments thereto, principally the rule enacted by Pres. GHW Bush that empowered ACORN and other leftist neighborhood groups to blackmail the large banks by calling for public hearings. By the way, Attorney Obama, employed by ACORN, was one of the blackmailers.
Second, its strategy – the creation of a bureaucracy to do the regulating -- gave it the power to destroy any financial enterprise that refused to do its bidding. The recent settlement that resulted in the largest banks paying billions to the Obama administration to be used for reducing the number of foreclosures looks and smells like blackmail.
Third and fourth, what is “excessive” risk? Should every enterprise be prevented from taking “excessive” risk? A free economy means the right of any entrepreneur to take risk, to profit therefrom or lose his capital. There is no such thing as “too big to fail.” Too many of the managers who caved in to government demands for lending to unworthy borrowers and faced bankruptcy ought to have been allowed to fail. They would not go out of existence but they would have a new set of managers. Instead, many of the managers of TARP-rescued banks and investment firms retained power and even got bonuses.
Nevertheless, whatever its reasoning, The Economist has done a great public service by giving us the facts and warning us of the dangers of overregulation. It is an example of responsible journalism.
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