Category Archives: regulation

Big Government and Economic Recovery

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Via UCLA comes an analysis of the Great Depression and the failures of Big Government policies in alleviating what began as a sharp recession.  Harold L. Cole and Lee E. Ohanian, after studying Franklin Roosevelt’s performance, have reached a conclusion about the New Deal.

Why the Great Depression lasted so long has always been a great mystery, and because we never really knew the reason, we have always worried whether we would have another 10- to 15-year economic slump.  We found that a relapse isn’t likely unless lawmakers gum up a recovery with ill-conceived stimulus policies.

These two lay the responsibility for the failure, in particular, on the anti-competition and pro-labor measures FDR signed into law in 1933.  Even though much of that first New Deal round was found unconstitutional, that outcome took a couple of years to reach, during which the damage was being done, and it was replaced by similar New Deal laws that a later, more submissive Supreme Court upheld.

Cole added

President Roosevelt believed that excessive competition was responsible for the Depression by reducing prices and wages, and by extension reducing employment and demand for goods and services.  So he came up with a recovery package that would be unimaginable today, allowing businesses in every industry to collude without the threat of antitrust prosecution and workers to demand salaries about 25 percent above where they ought to have been, given market forces. The economy was poised for a beautiful recovery, but that recovery was stalled by these misguided policies.

The Cole and Ohanian study went on:

Using data collected in 1929 by the Conference Board and the Bureau of Labor Statistics, Cole and Ohanian were able to establish average wages and prices across a range of industries just prior to the Depression.  By adjusting for annual increases in productivity, they were able to use the 1929 benchmark to figure out what prices and wages would have been during every year of the Depression had Roosevelt’s policies not gone into effect.  They then compared those figures with actual prices and wages as reflected in the Conference Board data.

In the three years following the implementation of Roosevelt’s policies, wages in 11 key industries averaged 25 percent higher than they otherwise would have done, the economists calculate.  But unemployment was also 25 percent higher than it should have been, given gains in productivity.

Meanwhile, prices across 19 industries averaged 23 percent above where they should have been, given the state of the economy.  With goods and services that much harder for consumers to afford, demand stalled and the gross national product floundered at 27 percent below where it otherwise might have been.

And with those carefully elevated prices—deliberately elevated through mandated price floors and, with agriculture, government-controlled production rates—food was so expensive that FDR forced food stamps—and the taxes to support them—through the Congress.

Ohanian added this, too:

High wages and high prices in an economic slump run contrary to everything we know about market forces in economic downturns.  As we’ve seen in the past several years, salaries and prices fall when unemployment is high.  By artificially inflating both, the New Deal policies short-circuited the market’s self-correcting forces.

Does any of this sound familiar?  Under the present administration, with its Patient Protection and Affordable Care Act, its Dodd-Frank Act, its wholly unaccountable Consumer Financial Protection Bureau, it’s really not so unimaginable.  Under the present administration, that singles out private citizens and publicly castigates them for political donations to the wrong candidates, with its picking and choosing individual business—and whole industry—winners and losers, it’s entirely understandable.

Cole concludes,

The fact that the Depression dragged on for years convinced generations of economists and policy-makers that capitalism could not be trusted to recover from depressions and that significant government intervention was required to achieve good outcomes.  Ironically, our work shows that the recovery would have been very rapid had the government not intervened.

RTWT.

 

With a h/t to GayPatriot, who actually were writing about a different matter.

A Partial Victory

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And from the 9th Circuit Court of Appeals, yet.  From an Associated Press article carried by Fox News, we learn that Arizona’s voter identification law has been upheld in important parts; although another important part has been struck down.

A 12-judge panel, rehearing an appeal from a 3-judge panel, upheld that prior panel’s ruling: that Arizona can, indeed, require identification from prospective voters at the polling stations before they are allowed to vote, but that the state cannot hold out for proof of American citizenship before registering to vote and getting that voter ID document.  On the latter, the Court held that the Federal government’s National Voter Registration Act, which does not require proof of American citizenship, overrides Arizona’s attempt to do so.

Arizona’s Attorney General Tom Horne expects that the US Supreme Court ultimately will have to resolve the question of whether Arizona can require proof of citizenship as a condition of voter registration.

The people of Arizona have a right to request that people registering to vote show some evidence they are citizens, and we fully expect the US Supreme Court to uphold that.

Indeed.  Critics argue that the voter ID law violates the rights of those denied registration to Constitutionally guaranteed equal protection.  However, those critics ignore, and the Supremes will have to consider in order to put this question finally to rest, that the equal protection rights of American citizens are violated by allowing non-citizens to vote and thereby dilute—and even override—the votes of those citizens.

Plainly, a state can allow non-citizens to vote in state and local elections, if it wishes.  However, they also can insist that only American citizens be allowed to vote in Federal elections conducted within the state.  They also can insist that only citizens of the state be allowed to vote in state and local elections.  Beyond the 14th Amendment’s equal protections guarantee (which, just by the way, carries its own requirement for voters for “electors for President and Vice-President of the United States, Representatives in Congress, the Executive and Judicial officers of a State, or the members of the Legislature thereof” to be “citizens of the United States”), the state and local choice questions are matters covered under the Constitution’s Article I, Section 10, which is carefully silent on this matter, and under the 10th Amendment.

One Can Hope

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My post today comes almost entirely from an opinion supporting the DC Circuit Court of Appeals’ opinion upholding a lower court ruling denying a dairy farmer’s objection to milk price regulation as applied to his farms.  From the per curiam (i.e., from the court itself—the majority opinion is unsigned, although dissents and concurrences, if they exist, are signed) opinion in Hettinga v United States comes the summary of the farmer’s beef:

Plaintiff-appellants Hein and Ellen Hettinga appeal the dismissal of their constitutional challenges to two provisions of the Milk Regulatory Equity Act of 2005 (“MREA”), Pub. L. No. 109-215, 120 Stat. 328 (2006) (codified at 7 U.S.C. § 608c). The Hettingas alleged that the provisions, which subjected certain large producer-handlers of milk to contribution requirements applicable to all milk handlers, constituted a bill of attainder and violated the Equal Protection and Due Process Clauses.

The Hettingas’ dairy farms were the only farms in the United States that were affected by the MREA; however, the Appellate Court upheld the application of MREA over the Hettingas’ constitutionally grounded objections.

From Circuit Judge Janice Rogers Brown’s, with whom Chief Judge David B Sentelle agreed (forced) concurrence:

…their consternation at being confronted with the gap between the rhetoric of free markets and the reality of ubiquitous regulation. The Hettingas’ collision with the MREA—the latest iteration of the venerable AMAA—reveals an ugly truth: America’s cowboy capitalism was long ago disarmed by a democratic process increasingly dominated by powerful groups with economic interests antithetical to competitors and consumers. And the courts, from which the victims of burdensome regulation sought protection, have been negotiating the terms of surrender since the 1930s.

More from her opinion:

As the dissent predicted in Nebbia, the judiciary’s refusal to consider the wisdom of legislative acts—at least to inquire whether its purpose and the means proposed are “within legislative power”—would lead to only one result: “[R]ights guaranteed by the Constitution [would] exist only so long as supposed public interest does not require their extinction.” In short order that baleful prophecy received the court’s imprimatur. In Carolene Products (yet another case involving protectionist legislation), the court ratified minimalist review of economic regulations, holding that a rational basis for economic legislation would be presumed and more searching inquiry would be reserved for intrusions on political rights.

The practical effect of rational basis review of economic regulation is the absence of any check on the group interests that all too often control the democratic process. It allows the legislature free rein to subjugate the common good and individual liberty to the electoral calculus of politicians, the whim of majorities, or the self-interest of factions.

She adds [her emphasis]:

…the Constitution created the countermajoritarian difficulty in order to thwart more potent threats to the Republic: the political temptation to exploit the public appetite for other people’s money—either by buying consent with broad-based entitlements or selling subsidies, licensing restrictions, tariffs, or price fixing regimes to benefit narrow special interests.

And

As another court has noted, federal regulation of milk pricing “is premised on dissatisfaction with the results of competition.” Alto Dairy v. Veneman, 336 F.3d 560, 562 (7th Cir. 2003). “M]ilk price discrimination is intended to redistribute wealth from consumers to producers of milk.” Id.

In the end, Judge Brown is quite blunt:

Civil society, “once it grows addicted to redistribution, changes its character and comes to require the state to ‘feed its habit.'”

Are we seeing a pattern begin to emerge?  Is not the Patient Protection and Affordable Care Act the outcome of a similar political temptation to…buy consent with a broad-based entitlement and subsidy?  Is not PPACA a similar attempt to redistribute wealth from healthy consumers to the unhealthy—or those who are timorous about their future after a lifetime of their own health-related choices?

And by extension is not all New Deal and later Commerce Clause regulation similar pandering and playing on dissatisfaction with competitive outcomes in order to preserve the status of incumbents?  After all, the Commerce Clause was intended to regularize the commerce of the several states among each other and to give Federal control over international trade.  And nothing more.

And Judge Brown also is right about the legal argument of “rational basis review.”  There’s nothing at all rational about it.  Arguments for or against any regulation, or any law, must proceed from how well that regulation or law preserves individual liberties and responsibilities, not from how well the regulation or law asserts dominance of any group over the individual.

 

h/t Power Line, and both a hat tip and a bow to DC Circuit Judge Janice Rogers Brown.

Banks and Governmental Reform

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The World Bank report, “China 2030: Building a Modern, Harmonious, and Creative High-Income Society,” concerns China’s future over the next 25, or so, years, and it describes a number of “challenges” its economy faces.

The report suggests, with regard to the financial sector in particular (beginning in Chapter 5 of “Supporting Report 1”):

Despite the many reforms introduced so far, the Chinese financial system remains repressed, unbalanced, costly to maintain and potentially unstable….

and

Banks have been used as instruments of the government’s macroeconomic and sectoral policy goals and have not always been in a position to lend prudently.

The Epoch Times summarizes this way:

The report suggests that China’s financial sector is constrained by state ownership and regime interference. The Chinese state uses the financial sector to enforce its policies, preventing lending institutions from becoming a true market force.

Sound familiar?

 

h/t to Belmont Club

Lobbying with a Red Herring

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The Associated Press is joining the lobbying of the Supreme Court over the Patient Protection and Affordable Care Act, and its effort is either cynical or ignorant, depending on their motive for their chosen focus:

During the recent oral arguments some of the justices and the lawyers appearing before them seemed to be under the impression that the law does not allow most consumers to buy low-cost, stripped-down insurance to satisfy its controversial coverage requirement.

The AP presents this as a “possible misunderstanding” the “could cloud” the Court’s deliberations.

Of course, cost is only a peripheral issue, arising primarily from Justice Antonin Scalia’s discussion of the subsidy a young, healthy American (who does not need health insurance—and who used to be able to make that decision for himself) must pay, through forced purchase of unneeded/undesired health insurance, so that others, claiming the need, can afford to get health insurance.

The question before the Court—as all the players understood, making their arguments concerning the constitutionality of PPACA’s Individual Mandate, and by extension of the PPACA itself, as they did—is the question of individual liberties and the degree to which Government can, under our Constitution, limit our liberty for our own good.

Cost isn’t the issue—freedom and government control over an individual’s decisions is.