Tag Archives: regulation

Rule of Law and Prosperity

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House Majority Leader Eric Cantor (R, VA) has issued a report that discusses, among other things, the relationship between rule of law and national prosperity and freedom.  Some excerpts follow.

From

Less noticed, but perhaps even more important—especially to the over 20 million Americans currently out of work or underemployed—is the link between a breakdown in the rule of law and reduced economic growth and individual prosperity.

Property rights and rule of law are essential for the proper and efficient functioning of society and the economy.  Unambiguous laws and procedures provide a framework by which free people agree on the scope and reach of their government’s actions, whereas unclear laws or arbitrary enforcement undermine individual liberty and the notion of popular sovereignty.  Clear, transparent, predictable rules that are applied without preference or prejudice allow individuals to invest, build businesses, and create jobs.  When there is a breakdown in the rule of law, increased uncertainty leads to reduced investment and less growth.

Numerous economic studies have documented the relationship between a strong rule of law and economic growth. In 2008, The Economist published the following chart alongside a story entitled “Order in the Jungle.”

The chart aptly illustrates the strong relationship between adherence to the rule of law and economic growth.  As economist Hernando de Soto—a leader in the field of the impact of property rights and rule of law on economic growth succinctly stated: “So the origin of the rule of law— which will allow a modern nation to grow and so bring peace, stability, and prosperity to the world—is property rights.  And the rule of law will actually generate prosperity.”

And

In the United States, the ultimate law is the Constitution, which specifically provides how laws are to be enacted and requires the President to take care that the laws that are enacted are faithfully executed.  The laws of the United States establish the process whereby individuals can enforce their property rights and private contracts and provide the framework by which executive agencies are to conduct rulemakings and the other regulatory activities.

When “laws” are created without going through Congress; when laws are selectively executed; when an administration intervenes into the normal judicial process and diminishes an individual’s property rights; and when the normal regulatory process is circumvented, the rule of law is eroded.

All of this increases uncertainty.  Individuals, families, and businesses now not only face uncertainty with respect to the policy decisions made by government, but they face uncertainty as to how those decisions will even be made.  Numerous economic studies and surveys indicate that uncertainty itself (which is certainly increased with the breakdown in the rule of law) also hinders economic growth.

While Administrations of both political parties have been known to test the bounds of the limits of their power, the breadth of the breakdown in the rule of law in recent years has reached new levels.  In the Heritage Foundation and Wall Street Journal‘s annual Index of Economic Freedom, the United States scores lower today on the rule of law than it did in 2008.  As the 2012 report notes, “Corruption is a growing concern as the cronyism and economic rent-seeking associated with the growth of government have undermined institutional integrity.”  Individuals and businesses are increasingly forced to rely on the courts to enforce their most basic substantive and procedural rights.

To

There is no excuse for this continuous disregard of legislative authority and the Constitutionally-required separation of powers.  In some instances, President Obama attempted to garner legislative authority, failed and then acted unilaterally in defiance.  In other instances, the President never even sought to find consensus and instead ignored Congress and its authority from the outset.  In speeches, the President has proudly acknowledged that he has acted without Congress, contending that he has no other alternative.

This is no way to govern.  The President has set a precedent that even his supporters should find troubling.  After all, what would now prevent a subsequent President, with opposite policy predilections, from bypassing the checks on his own authority and enacting his own policies in this same manner?  The Founding Fathers wisely gave the President many powers, but making law was not one of them.  They understood that laws should not be made by one individual acting alone, but rather through elected representatives working to achieve consensus.

House Republicans have acted to prevent and overturn the President’s harmful actions in order to return economic growth, opportunity and certainty to the American people and American job creators.  However, the majority of the bills the House has passed are sitting idly in the Democrat-led Senate, without any action on the part of Democratic Leader Harry Reid or President Obama.

Throughout our nation’s history, presidents have sought common ground and achieved legislative success with opposing party leaders.  Many of the laws circumvented in this report were achieved in that manner.  Congressional authority must not be disregarded to suit political interests, create unpopular regulations and to avoid the hard work of bipartisan negotiation that has been a hallmark of our Republic since its inception.

Note that such measures as are required by the erosion/breakdown of the rule of law as bringing legal cases to court only adds to business’ and individual’s current costs and increases their uncertainty, since court outcomes are largely unpredictable.

RTWT.  It’s a long-ish read, but it also includes a list of current examples.

 

h/t Grim’s Hall

Community Banks, Big Banks, and Government Regulation

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First, the value of community banks, as illustrated by this anecdote from an Iowa bank’s President:

We have a good story to tell. According to the latest annual report from the Iowa Bankers Association, Iowa’s banks helped keep the state’s economy humming by, among other things, safeguarding $56 billion in deposits and using those funds to lend nearly $42 billion to help Iowa residents and businesses. Iowa banks also paid $158 million in taxes, made $39 million in community donations, and sponsored financial education programs in more than 129 schools.

For perspective, this compares to Iowa’s estimated 2012 GDP of $158 billion.

Despite this value-add, though, here’s what Uncle Sugar is doing to these smaller banks, courtesy of Dodd-Frank:

This expanding multitude of [Dodd-Frank] rules is…why some banks have decided not to offer certain types of consumer loans and more accommodating repayment terms.  A recent survey of Iowa bankers reveals that 89 percent of respondents say the regulatory environment has impacted their ability to provide credit; 81 percent say it has hurt their customers’ ability to understand financial products; and 68 percent say it has caused them to consider eliminating financial products.

As Spirit of Enterprise notes, this favors big banks, who can afford the costs of staff whose sole function has no relation to a banks’ actual business, but instead centers on compliance with government mandates, and it’s driving these community banks out of the industry.  Defending Enterprise puts it this way, and rather than seeing him as cynical, I agree with him:

Once heavy new banking regulation became inevitable, Wall Street and the Democrats insured that the government would make the big banks even bigger by driving the small banks out of business. One might argue that these were “unintended” consequences. We respectfully submit that these consequences were so predictable, akin to the timing of the rising of the sun or at least tomorrow’s weather, that they were, in fact, intended.

Federal Control(s)

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This is how the central government gets its subordinate states ensnared in the Federal power trap.  Much has been written already on the entrapment of the states in the Medicaid, education, and so on honeypots, with the Feds having gotten the states dependent on Federal monies for those programs, and then using that addiction to control the states’ behavior vis-à-vis those programs—and other useful state considerations—lest those funds have something happen to them (albeit descriptions have not been this blunt).

Here’s an explicit example, this time aimed at New Orleans and through this city the state of Louisiana.

Engineers consider it a Rolls Royce of flood protection—comparable to systems in seaside European cities such as St. Petersburg, Venice, Rotterdam and Amsterdam.  Whether the infrastructure can hold is less in question than whether New Orleans can be trusted with the keys.

The Army Corps estimates it will take $38 million a year to pay for upkeep, maintenance and operational costs after it’s turned over to local officials.

Local flood-control chief Robert Turner said he has questions about where that money will come from.  At current funding levels, the region will run out of money to properly operate the high-powered system within a decade unless a new revenue source is found.

“That’s been the eternal problem with flood-protection systems,” said Thomas Wolff, an engineer at Michigan State University.  “You build something very good and then give it to local interests who are not as well-funded.”

However, the Feds will blame the locals for the failure:

Congressional investigations found the old Orleans Levee Board more interested in managing a casino license and two marinas than looking after levees.  Though the Army Corps of Engineers had responsibility for annual levee inspections, the local levee boards were responsible for maintenance.  Still, the boards spent millions of dollars on a fountain and overpasses rather than on levee protection.

Never mind that the locals have a local economy that needs looking after, else there’s nothing for a (Cadillac) Federal program to…protect.

As Richard Fernandez notes in his post,

The problem with free stuff is that someone has to pay for it.

And when the Federal government sighs and says, “OK, we’ll pay,” it then also exerts control over the program being centrally funded and over the entity “benefiting” from that program.  And so the entity and its citizens also “pay for it,” with their freedom of action.

So much for federalism.

Government Regulator Abuse

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Described by John Stossel:

Today, Americans were told that they must close their Intrade.com accounts. That happened because the federal government agency known as the “Commodity Futures Trading Commission” (CFTC) today sued the prediction market, where people from all over the world bet about things like who will win elections.

Because

Intrade has…successfully predicted events like Saddam Hussein’s capture and the winner of the Oscars.  People with the best information trade about those events, and drive up the odds on Intrade.

After all, such things are against US financial regulations, don’t you know:

Section 4c(b) and 9(a)(3) of the [Commodity Exchange] Act, §§6c(b) and 13(a)(3) (2006); Section 2(e) of the Act, as amended by the Dodd-Frank Act, to be codified at 7 U.S.C. § 2(e); and Regulation 32, as amended, to be codified at 17 C.F.R. § 32 (2011)

The CFTC is, here, specifically and deliberately targeting “prediction markets:”

It is against the law to solicit US persons to buy and sell commodity options, even if they are called “prediction” contracts, unless they are…traded on a CFTC-registered exchange….  Today’s action should make it clear that we will intervene in the “prediction” markets, wherever they may be based.

Why does this matter?  Because if the government can “intervene” to destroy an obscure little idea and the free market business it generated, it can do so in the free market generally, and that market becomes a  government run market.

The CFTC argues that the regulation

is important for a number of reasons, including that it enables the CFTC to police market activity.

So the CFTC says it’s necessary to enforce so that it can enforce.  Nothing circular here.

One more thing.  The CFTC has, with this…position…placed your penny-ante poker game at risk, too.  After all, each of you, as you deal the next round, are soliciting options on the future—of your and your opponents’ hands.

An Empirical Demonstration

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Investor’s Business Daily provides one.

Renting a 20-foot truck one-way from San Francisco to San Antonio, for example, will cost $1,693. But the U-Haul tab to go in the opposite direction is just $983.

Hmm….

This figure compares, across just a few parameters, the outcome of big government, high taxes, and profligate spending—California—with the outcome of limited government, low taxes, and (more) disciplined spending—Texas.  Texas has many faults, but the routine of government interference with its citizens’ wallets and businesses isn’t among them.

California has become a state that people are increasingly trying to escape, and Texas a state people are increasingly migrating to.

…

A study by the Manhattan Institute found that Californians have been leaving for states with better job prospects, lower taxes and better business climates.

In other words, states that are pursuing the kind of low-tax, limited government, free market policies [President Barack] Obama typically rejects.

The public may have voted to give Obama a second term.  But many people in California are voting with their feet, leaving the state that’s already put in place policies Obama has promised to keep pushing for four more years.

Obamanomics, as California demonstrates—its economy actually shrank sharply in the last four years—are an utter failure.  RTWT.