Allahpundit says Paul dropped an Ayn Rand truth bomb on the Senate Energy and Natural Resources Committee.

Richard Epstein, in a very important paper published in the Spring issue of National Affairs, discusses the many ways in which the modern administrative state has by-passed a uniform rule of law in favor of permitting regulatory bodies to negotiate a variety of terms and concessions in areas affecting broadcast licensing, labor relations, prescription drug licensing, health care, and so on.

Epstein cites, as a particularly striking example, the kind of negotiations which have become customary in the case of building permits.

These days, to begin any new building project, every developer must obtain a sheaf of permits that go far beyond the relatively mundane functions of avoiding falling bricks or aligning curb cuts to secure entryways for indoor parking. Indeed, today’s new norm calls for exhaustive hearings before planning commissions and community boards; these investigations are intended to probe the size of a project, its exterior design, the number and type of apartment units, access for the disabled, the amount of affordable housing (with complex subsidies from both the government and the developer), project financing (with government guarantees), proper hiring practices (with appropriate set-asides for women and minority workers), and multiple inspections for just about everything.

Yet just as all these requirements can be imposed, they can also be waived. The waivers, though, often come at a price — or, more accurately, a land-use exaction. For instance, a cash-strapped local government may be willing to waive the requirement that a developer set aside a certain percentage of apartment units to rent at below-market rates to the poor. The catch, however, is that the developer must agree to provide funding to build or refurbish a public school, a public park, or a nearby train station. The developer almost inevitably yields to the exaction, because he knows that, if he does not, he faces prolonged resistance and constrictive red tape from the government — obstacles that could eventually sink his project. But the requests for exactions may come from many varied groups with different expectations and demands. Parents may want a new school or park, commuters may want a new train station, cyclists may want new bike lanes, the arts community a new public performance space, homeless advocates a new shelter, and so on. It may not be possible for the government or the developer to satisfy all of the groups simultaneously — and the attempt to do so can tie up development for years, or cause projects to be scrapped altogether. This phenomenon drives up the number of project failures, which in turn shrinks the supply of housing, which then drives up housing costs and puts even greater pressure on both the developers and the regulators.

Read the whole thing.

All you need to know about government bureaucracy:

** US Government regulations on sale of cabbage: 26,911 words.

Hat tip to Theo Spark.

Where was the cost/benefits analysis on all the new regulations Barack Obama already signed?

Dan Mitchell argues that Barack Obama’s new alleged centrism, as manifested by his WSJ column about deregulation, is not sincere, was accompanied by his usual factual misstatements, and is flagrantly contradicted by his policies.

The President garnered some attention for his January 18 column in the Wall Street Journal, in which he said we need to control the regulatory burden.

Let’s start with the insincere part. He praised capitalism.

America’s free market has not only been the source of dazzling ideas and path-breaking products, it has also been the greatest force for prosperity the world has ever known. That vibrant entrepreneurialism is the key to our continued global leadership and the success of our people.

I’m not really sure how to analyze this passage. Let’s just say it is akin to George W. Bush talking about the need for small government and fiscal responsibility.

Obama then talks about the need for balance, saying that regulations sometimes are too onerous, but then he gets to the inaccurate part.

…we have failed to meet our basic responsibility to protect the public interest, leading to disastrous consequences. Such was the case in the run-up to the financial crisis from which we are still recovering. There, a lack of proper oversight and transparency nearly led to the collapse of the financial markets and a full-scale Depression.

I don’t know whether to laugh or cry at this statement. A part of the government, the Federal Reserve, creates far too much liquidity with an easy-money policy. Other government-created entities, Fannie Mae and Freddie Mac, then create enormous subsidies for bad housing loans. These combined policies lead to a bubble that bursts, and Obama wants us to believe it was a problem of inadequate regulation?!? For those who are interested, here’s a good article from the American Enterprise Institute explaining how government caused the financial crisis.

Now let’s get to the hypocritical part, where the President issues a new executive order, asserting we need to balance costs and benefits.

As the executive order I am signing makes clear, we are seeking more affordable, less intrusive means to achieve the same ends—giving careful consideration to benefits and costs. This means writing rules with more input from experts, businesses and ordinary citizens. It means using disclosure as a tool to inform consumers of their choices, rather than restricting those choices.

I suppose we should give the President credit for chutzpah. Less than one month ago, his Administration proposes an IRS interest-reporting regulation that, in a best-case scenario, will drive tens of billions of dollars out of the U.S. economy. That regulation does not even pretend there are any offsetting benefits, yet Obama says his Administration will be diligent in applying cost-benefit analysis. This is sort of like a kid murdering his parents and then asking a court for mercy because he’s an orphan.

Read the whole thing.

Another column or two like that, though, and David Brooks and Peggy Noonan will be signing Obama’s praises again.

When I was a boy, in most parts of the United States outside the largest and most intensely regulated metropolitan areas, if you owned some land and wanted to build something, you could go right ahead and build it. Over the years, the empire of government has grown unceasingly, zoning regulations, infinitely detailed building codes, environmental regulations, and complex systems of permits and permissions have spread across America like kudzu.

Your tax dollars support what the Declaration of Independence referred to as “a multitude of New Offices, and… swarms of Officers to harass our people and eat out their substance.” Every one of those officials feels obligated to see to it that the American property owner conforms to every item and detail of the regulatory regime which represents the entire raison d’etre of his career and livelihood.

Roland Toy, at American Thinker, describes his own, perfectly typical encounter with the system Americans have enthusiastically created to protect them from themselves.

133 days earlier I had submitted plans for my house to the county building department. A month later, the department sent a letter explaining that the proposed septic system had to be relocated 60 feet to the east of a location the county had approved earlier. However, in recent months a bald eagle’s nest had been spotted in adjacent public lands, and the county now required a buffer between the nest and any development on my property. Fine. I had seen a bald eagle soaring overhead—once with something that looked like a small animal it its claws. Anything for the symbol of America. And the septic system relocation was less than trivial, a few steps in one direction in the midst of millions of acres of sandy wilderness that was already officially sanctioned for a septic system.

The problem arose when the relocation required a new permit application, complete with fresh paperwork, hefty fees, a two-week waiting period for public input, and a new soil study by a professional soil engineer on a county-approved list.

I called the man who had signed the letter and appealed to his common sense, to his engineering acumen, and finally to his decency. Any moron could see that the septic system could be nudged a few feet with zero environmental impact—the approved sand dune was the same whether 8’ or 80’ or 8000’ feet from the property line. What could possibly be accomplished by breathing life into a new bureaucratic tangle? But in the end, my entreaties failed and the conversation amounted to mutual declarations of war. I backed off when he began making vague references to a possible environmental assessment report. Thus began a slow-motion shell game in which a bureaucrat, after extracting an extortionate fee, transferred irrelevant paperwork from one file folder to another. Some highlights of that loony process ($2,831.00, 103 days) are shown below:

• Submit plans to county ($450.00).
• County disapproves plans, requires variance.
• Variance request submitted ($125.00).
• Request denied. New application and soil study required.
• At an arbitration meeting ($250.00), the arbitrator rules for the county. Not technically a county employee, he’s on a chummy first-name basis with the county representatives.
• Start new application ($125.00) and commission a second soil study ($1,350.00) by an engineer on the county-approved list .
• Plan reviewers fail to show for a meeting. They’re at a ‘team-building’ retreat. In an unpleasant scene, two customer service representatives complain about my attitude after I tell them that for the non-meeting I had to drive 180 miles over winding mountain roads.
• County approves new septic system location.
• Craig makes site visit for percolation test ($541.00).

Back at the percolation test, all that was history. I understood it and wasn’t destined to repeat it. But Craig had been leafing through his papers for a long while. “Is there a problem?” I asked.

“Your soil engineer isn’t on the new approved list.”

“He’s gotta be there. You guys gave me his name.”

Craig pulled out his cell phone and spoke intently with his superiors. Eventually he hung up and said, “It’s probably nothing serious. But something’s screwy with the new list and I can’t do the inspection until the paperwork is right.”

“What’s the problem?”

“We’re not sure yet, but your engineer just isn’t on the list.”

“So you don’t know how long it’s going to take to fix or if it can be fixed?”

Craig muttered abjectly, “I’m sorry. I’m still on probation and they audit me.”

Like contentious litigation, every interaction with the building department had a tendency to take on an unpredictable life of its own. This was a moment of truth. God may have understood the SNAFU that had kept my engineer’s name off the list, but I didn’t. When does reasonable accommodation become craven appeasement? Would I continue working with the totalitarians who were polluting my life? Would I start another round of telephone tag, being stood up at meetings, preparing for rigged arbitrations, and paying the fees? Would I have to commission yet another soil assessment, the third one that would reiterate what everybody already knew? Or would I draw a line in the literal sand and rebel against the yoke of tyranny? A crazy image flashed through my mind. I was in the percolation test hole with a rifle, holding off swarms of g-men in bulletproof vests as helicopters and a lone bald eagle circled overhead.

Matthew Ridley, in the Saturday Wall Street Journal Review section, offers a summary of a new and valuable article on the biases fueling endless government expansion and bad policy.

Slavisa Tasic, of the University of Kiev, wrote a paper recently for the Istituto Bruno Leoni in Italy about [the psychology and neuroscience of government]. He argues that market participants are not the only ones who make mistakes, yet he notes drily that “in the mainstream economic literature there is a near complete absence of concern that regulatory design might suffer from lack of competence.” Public servants are human, too.

Mr. Tasic identifies five mistakes that government regulators often make: action bias, motivated reasoning, the focusing illusion, the affect heuristic and illusions of competence.

In the last case, psychologists have shown that we systematically overestimate how much we understand about the causes and mechanisms of things we half understand. The Swedish health economist Hans Rosling once gave students a list of five pairs of countries and asked which nation in each pair had the higher infant-mortality rate. The students got 1.8 right out of 5. Mr. Rosling noted that if he gave the test to chimpanzees they would get 2.5 right. So his students’ problem was not ignorance, but that they knew with confidence things that were false.

The issue of action bias is better known in England as the “dangerous dogs act,” after a previous government, confronted with a couple of cases in which dogs injured or killed people, felt the need to bring in a major piece of clumsy and bureaucratic legislation that worked poorly. Undoubtedly the rash of legislation following the current financial crisis will include some equivalents of dangerous dogs acts. It takes unusual courage for a regulator to stand up and say “something must not be done,” lest “something” makes the problem worse.

Motivated reasoning means that we tend to believe what it is convenient for us to believe. If you run an organization called, say, the Asteroid Retargeting Group for Humanity (ARGH) and you are worried about potential cuts to your budget, we should not be surprised to find you overreacting to every space rock that passes by. Regulators rarely argue for deregulation.

The focusing illusion partly stems from the fact that people tend to see the benefits of a policy but not the hidden costs. As French theorist Frédéric Bastiat argued, it’s a fallacy to think that breaking a window creates work, because while the glazier’s gain of work is visible, the tailor’s loss of work caused by the window-owner’s loss of money—and consequent decision to delay purchase of a coat—is not. Recent history is full of government interventions with this characteristic.

“Affect heuristic’” is a fancy name for a pretty obvious concept, namely that we discount the drawbacks of things we are emotionally in favor of. For example, the Deepwater Horizon oil spill certainly killed about 1,300 birds, maybe a few more. Wind turbines in America kill between 75,000 and 275,000 birds every year, generally of rarer species, such as eagles. Yet wind companies receive neither the enforcement, nor the opprobrium, that oil companies do.

If lawmakers are to understand how laws get applied in the real world, they need to know and understand the habits of mind of their officials.

Ever have a personal experience of some irrational and unnecessary federal regulation?

I can remember, decades ago, when I was still a student working at factory jobs during the summer, spending weeks and weeks installing OSHA-mandated improvised barriers on machine tools of every sort.

The activity was pointless. The rods, bars, and pieces of sheet metal I was attaching were simply nuisances that would only get in the way. No one wanted them. No one needed them. No one thought they were desirable. But someone in Washington, undoubtedly someone who had never operated a machine tool or worked in a factory, had decreed that a symbolic sacrifice of convenience and efficiency to the safety gods must be performed, and every factory and machine shop in the land was obliged to genuflect and sacrifice.

Nicole V. Crain and W. Mark Crain, in the Wall Street Journal explain that regulations have continued to increase over the years, by now amounting to a serious portion of our national income.

The annual cost of federal regulations in the United States increased to more than $1.75 trillion in 2008, a 3% real increase over five years, to about 14% of U.S. national income. This cost is in addition to the federal tax burden of 21%, for a combined cost of 35% of national income. One out of every three dollars earned in the U.S. goes to pay for or comply with federal laws and regulations, and new policies enacted in 2010 for health care and financial services will increase this burden.

The New York Times rejoiced in the passage of the massive and occult 2300-page Financial Reform Bill with its customary propagandistic progressive nonsense.

Congress approved a sweeping expansion of federal financial regulation on Thursday, reflecting a renewed mistrust of financial markets after decades in which Washington stood back from Wall Street with wide-eyed admiration.

The bill, heavily promoted by President Obama and Congressional Democrats as a response to the 2008 financial crisis, cleared the Senate by a vote of 60 to 39, largely along party lines, after weeks of wrangling that allowed Democrats to pick up the three Republican votes to ensure passage.

The vote was the culmination of nearly two years of fierce lobbying and intense debate over the appropriate response to the financial excesses that dragged the nation into the worst recession since the Great Depression.

The result is a catalog of repairs and additions to the rusted infrastructure of a regulatory system that has failed to keep up with the expanding scope and complexity of modern finance.

Over the last half-century, as traders and lenders increasingly drove the nation’s economic growth, politicians of both parties scrambled to get out of the way, passing a series of landmark bills that allowed financial companies to become larger, less transparent and more profitable.

Usury laws were set aside. Banks were allowed to expand across state lines, sell insurance, trade securities. The government watched and did nothing as the bulk of financial activity moved into a parallel universe of private investment funds, unregulated lenders and black markets like derivatives trading.

That era of hands-off optimism was gaveled to an end on Thursday as the Senate gave final approval to a bill that reasserts the importance of federal supervision of financial transactions.

The financial crisis, of course, had absolutely nothing to do with usury, banks expanding across state lines, selling insurance, or trading securities. The crisis had everything to do with mortgage lenders who, rather than being unregulated, were specifically federally required to make more risky loans to persons with dubious credit. At the center of the current financial crisis are the federally-created mortgage corporations and they are completely overlooked by the new legislation.

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As the Wall Street Journal explains our saviours are now going to protect us with a bevy of new agencies and a blizzard of yet-to-be-defined regulations, to be worked out later behind closed doors.

The bill, to be signed into law soon by President Barack Obama, marks a potential sea change for the financial-services industry. Financial titans such as J.P. Morgan Chase & Co., Goldman Sachs Group Inc. and Bank of America Corp. may be forced to make changes in most parts of their business, from debit cards to the ability to invest in hedge funds.

Congress approved a sweeping rewrite of rules that touch every corner of finance in the biggest expansion of government power over banking and markets since the Great Depression.

The Senate passed the bill 60-39 Thursday, following House passage last month. Earlier in the day, three northeastern Republicans joined with Democrats to block a filibuster, allowing the bill to squeak through.

Now, the legislation hands off to 10 regulatory agencies the discretion to write hundreds of new rules governing finance. Rather than the bill itself, it will be this process—accompanied by a lobbying blitz from banks—that will determine the precise contours of this new landscape, how strict the new regulations will be and whether they succeed in their purpose. The decisions will be made by officials from new agencies, obscure agencies and, in some cases, agencies like the Federal Reserve that faced criticism in the run-up to the crisis. ...

The legislation creates a council of regulators to monitor economic risks; establishes a new agency to police consumer financial products; and sets new standards for the way derivatives are traded. “These reforms will benefit the prudent and constrain the imprudent,” Treasury Secretary Timothy Geithner said in a press conference. “Strong banks, the well-managed financial innovators, will adapt and thrive under the new rules of the road.”

Republicans said the bill could jeopardize the recovery by constraining credit and crimping the banking industry, and chided the expansion of government power it envisions.

The bill “is a 2,300-page legislative monster…that expands the scope and the powers of ineffective bureaucracies,” said Sen. Richard Shelby (R., Ala.).

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It’s all a farce, of course. The professional political class is simply taking advantage of the financial crisis it created itself to ride to the supposed rescue and carve itself out another huge chuck of power over the economy.

Well-connected people with the right kinds of background and education will regulate in collusion with the wealthiest and most influential financial industry players, friends of the system in Washington will get favors, their less-well-connected competitors will get the shaft, higher entry barriers will be put into place, and regulators when they leave office will move on to more lucrative positions and consultancies. The powers that be will prosper and the public will pay.

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Still the financial system will survive:

Kate Sullivan: One day we’ll smarten up and pass some laws and put you out of business.

Lawrence Garfield: They can pass all the laws they want. All they can do is change the rules. They can never stop the game. I don’t go away. I adapt.

—Other People’s Money (1991)

John Maudlin looks at the economic situation and sees nothing but bad news piled upon bad news.

Unemployment is high and is in reality going higher if you count those who would take a job if they could get one. Incomes are weak. Plans to purchase discretionary items are falling. Housing is likely in for a further drop in prices. The stock market is not exactly booming. Treasury yields are falling, not from a credit crisis or a flight to quality, but because of economic conditions (deflation). Money supply is flat or falling. Prices are under pressure. The list goes on, and all factors are indicative of deflation.

As noted last week, the data suggests we could see weak growth in the last half of the year. Over two-thirds of the past quarter’s 2.7% growth was from inventory rebuilding, which surveys seem to show is abating as inventories begin to stabilize.

I was on Larry Kudlow’s show (links below) last Tuesday, and he gave me some time to air my views. My main concern, as readers know, is that we may have a weak economy in the latter half of the year and then introduce a large tax increase, which my reading of the economic studies on tax increases suggests will throw us into recession. Recessions are by definition deflationary. (Not to mention what another one would do to unemployment and the stock market!) With inflation at less than 1%, could we see the central banker’s nightmare of outright deflation? We very well could. I think that is what the bond market is saying.

Beyond the threat of economic destruction via deflation, we have additionally the reality of dishonest and irresponsible regulation.

“Why don’t you reform yourselves? That task would be sufficient enough.” – Frédéric Bastiat

I’ll finish with this thought. This financial reform bill should be thrown out and they should start over. So much has been tagged onto this bill that has nothing to do with reform but is all about political agendas. It is also far too vague. Essentially, they create all these new committees or empower the bureaucracies that missed it last time to come up with the actual details of regulation. For all intents and purposes, a small number of unelected individuals will be given almost total control to write new rules overseeing a huge part of our economy. No matter how well-intentioned, this is not something that should be done in closed rooms.

We need major reform, of course. And when are we going to get to Freddie and Fannie, which are totally ignored but will cost the taxpayer the most? Local Congressman Jeb Hensarling has it right. He estimates there are about 3 unintended consequences on every page of that 1,200-page bill.

Jon Stewart Asks David Axelrod: Has This Government Proven Itself Competent Enough To Regulate Industry?

4:58 video

JON STEWART, HOST: It’s clear that this administration believes that government can have a stronger hand in regulating Wall Street, in regulating energy, in doing these things. But, has government during this time proved itself competent? And are our only two choices sort of an incompetent bureaucracy that doesn’t quite regulate properly or free market anarchy? Before you can make the case that this administration and government can effectively regulate shouldn’t they, you know, the MMS case makes a pretty clear point that the regulatory system is somewhat broken, and you guys had a chance to…

DAVID AXELROD, SENIOR OBAMA ADVISOR: The answer Jon is not to abandon the notion that there have to be rules and oversight. ...

[E]verybody recognizes that government has to play a role. It shouldn’t be an oppressive role, but there has to be some firm oversight and some rules of people respond to. These, you know, it’s pretty clear the oil industry is not going to regulate itself.

STEWART: But do you think, I guess my point is before you have the opportunity, before you can earn the ability to go in and, and, and do that, don’t, don’t we have to show a certain baseline level of competence.

John Heilemann is a progressive, and thus believes that Wall Street greed and deregulation, not government mortgage policies, caused the financial crisis, Obama saved capitalism when he should perhaps have simply nationalized the entire financial industry, and those deluded bankers don’t understand the righteous anger of the workers and the peasants. It is the moderate Obama, you see, that has been standing between them and the pitchfork-waving mob.

Personally, I think all that is a crock, but Heilemann’s gossipy account of the politics of Wall Street “reform” is amusing, and I do believe that he is accurately reporting the Street’s disenchantment with the Chosen One. I’d say where those bankers were clueless was back in 2008 when they allowed image, demeanor, and style to persuade them to believe that ideas and political polarities don’t really matter.

The speed and severity of the swing from enchantment to enmity would be difficult to overstate. When Obama was sworn into office, Democrats on Wall Street rejoiced at the ascension of a president in whom they saw many qualities to admire: brains, composure, bi-partisan instincts, an aversion to class-based combat. And many Wall Street Republicans—after witnessing the horror show that constituted John McCain’s response to the financial crisis—quietly admitted relief that the other guy had prevailed.

Today, it’s hard to find anyone on Wall Street who doesn’t speak of Obama as if he were an unholy hybrid of Bernie Sanders and Eldridge Cleaver. One night not long ago, over dinner with ten executives in the finance industry, I heard the president described as “hostile to business,” “anti-wealth,” and “anti-capitalism”; as a “redistributionist,” a “vilifier,” and a “thug.” A few days later, I recounted this experience to the same Wall Street CEO who’d called the Volcker Rule a testicular blow, and mentioned I’d been told that one of the most prominent megabank chiefs, who once boasted to friends of voting for Obama, now refers to him privately as a “Chicago mob guy.” Do all your brethren feel this way? I asked. “Oh, not everybody—just most of them,” he replied. “Jamie [Dimon]? Lloyd [Blankfein]? They might not say Obama’s a socialist, but they come pretty close.” ...

At Goldman and elsewhere, the belief is strong that the case against Wall Street’s most storied firm was politically motivated; lately, Blankfein has taken to trashing Obama to his friends in unusually brutal personal terms. Dimon—who is fond of declaring, “I’m a patriot!” in meetings with White House officials—recently described himself publicly as “a wavering Democrat.”

And even those less bruised than them have found the experience traumatizing. “They’re not accustomed to being engaged in politics this way,” says a private-equity investor. “Their skin isn’t toughened. They actually take [the attacks by Obama] personally. This is a profession with a lot of smart people, but who aren’t necessarily terribly introspective. They think they actually deserve to make all this money. So any attack on their livelihood is, ahem, unpleasant.”

Maybe it was inevitable that the dewy-eyed affair between Wall Street and the White House would so quickly and nastily come a cropper. For more than 30 years, the approach of every administration to the financial industry has been either laissez-faire or actively deregulatory. On the left, much blame is placed at the feet of Clinton, Rubin and his then-deputy, Summers, but in truth they were merely part of a continuum that stretched back to Jimmy Carter. Considering how close the financial system came in 2008 to Armageddon, the consensus for imposing new rules and greater order was nearly universal (among the sane, at least). Yet that does little to lessen the sense of shock—of violation, really—that Wall Street feels. ...

There are those who reckon that, what with the wailing and gnashing among both the plutocrats and the populists, Obama has actually found the political sweet spot. “Main Street is mad at the president because he’s too close to Wall Street, and Wall Street is mad at him because he’s too populist,” Altman says. “Therefore, almost by definition, he’s in the right place.”

Yet the political and financial implications of the rift between Obama and Wall Street may be significant. Already, Goldman, JPMorgan, UBS, and many other financial-services firms are shifting their contributions toward the GOP. Not long ago, a big-time Obama Wall Street fund-raiser asked his go-to guy at one of the megabanks that had lavishly supported the candidate in 2008 what level of donations the president might expect from the firm’s people in 2012. The answer was less than a tenth of the previous total.

The BP Oil Spill produced throughout the echo chamber of the American left a familiar narrative featuring some nefarious corporation jeopardizing the public interest accompanied by hints of lax regulatory supervision all leading to the conclusion that, once again, what is vitally needed is beefed-up progressive government riding to the rescue to curb the excesses of unbridled free market capitalism.

Libertarian Sheldon Richman, in the Freeman, explains that the reality of the current situation is far more complex.

[T]his is not just a simple matter of regulation. More fundamentally it’s a matter of ownership. The government has proclaimed itself the owner of the offshore positions where oil companies drill. In a free market those positions would be homesteaded and managed privately with full liability. In the absence of a free market and private property, built-in incentives that protect the public are diminished if not eliminated. Bureaucrats and “political capitalists” are not as reliable as companies facing bankruptcy in a fully freed market. ...

Negligent or not, BP is a player in a corporatist system that for generations has featured a close relationship between government and major business firms. (It wouldn’t have surprised Adam Smith.) Prominent companies have always been influential at all levels of government — and no industry more so than oil, which has long been a top concern of the national policy elite, most particularly the foreign-policy establishment. When state and federal governments failed in the 1920s to put a lid on unruly competition and low prices through wellhead production quotas (prorationing), the oil companies turned to Franklin Roosevelt and the federal government, winning the cartelizing Petroleum Code, significant parts of which were revived after the National Recovery Administration was declared unconstitutional. In the 1950s, when cheap imports depressed prices, the national government imposed quotas on foreign oil. Venezuela was the chief target at the time. (In 1960 OPEC, a “cartel to confront a cartel,” was founded.) Republican or Democratic, energy policy is not made without oil industry input.

In this context there’s less to the contrast between government regulation and corporate self-regulation than meets the eye. Self-regulation in a corporate state does not constitute the free market. When companies are sheltered in any substantial way from the competitive market’s disciplinary forces, incentives turn perverse. Moreover, “state capitalism” and the corporate form – with its agency problem – can produce the temptation to cut costs imprudently in order to make the next quarterly report look attractive to shareholders.

“Putting profits before people” is a feature of state, or crony, capitalism not the free market.

Arthur C. Brooks, president of the America Enterprise Institute, has an excellent editorial on the current struggle over America’s future between the 30% comprising the American left and the rest of us.

America faces a new culture war.

This is not the culture war of the 1990s. It is not a fight over guns, gays or abortion. Those old battles have been eclipsed by a new struggle between two competing visions of the country’s future. In one, America will continue to be an exceptional nation organized around the principles of free enterprise—limited government, a reliance on entrepreneurship and rewards determined by market forces. In the other, America will move toward European-style statism grounded in expanding bureaucracies, a managed economy and large-scale income redistribution. These visions are not reconcilable. We must choose.

It is not at all clear which side will prevail. The forces of big government are entrenched and enjoy the full arsenal of the administration’s money and influence. Our leaders in Washington, aided by the unprecedented economic crisis of recent years and the panic it induced, have seized the moment to introduce breathtaking expansions of state power in huge swaths of the economy, from the health-care takeover to the financial regulatory bill that the Senate approved Thursday. If these forces continue to prevail, America will cease to be a free enterprise nation.

I call this a culture war because free enterprise has been integral to American culture from the beginning, and it still lies at the core of our history and character. “A wise and frugal government,” Thomas Jefferson declared in his first inaugural address in 1801, “which shall restrain men from injuring one another, shall leave them otherwise free to regulate their own pursuits of industry and improvement, and shall not take from the mouth of labor the bread it has earned. This is the sum of good government.” He later warned: “To take from one, because it is thought that his own industry and that of his fathers has acquired too much, in order to spare to others, who, or whose fathers, have not exercised equal industry and skill, is to violate arbitrarily the first principle of association, the guarantee to every one of a free exercise of his industry and the fruits acquired by it.” In other words, beware government’s economic control, and woe betide the redistributors.

Now, as then, entrepreneurship can flourish only in a culture where individuals are willing to innovate and exert leadership; where people enjoy the rewards and face the consequences of their decisions; and where we can gamble the security of the status quo for a chance of future success.

Yet, in his commencement address at Arizona State University on May 13, 2009, President Obama warned against precisely such impulses: “You’re taught to chase after all the usual brass rings; you try to be on this “who’s who” list or that Top 100 list; you chase after the big money and you figure out how big your corner office is; you worry about whether you have a fancy enough title or a fancy enough car. That’s the message that’s sent each and every day, or has been in our culture for far too long—that through material possessions, through a ruthless competition pursued only on your own behalf—that’s how you will measure success.” Such ambition, he cautioned, “may lead you to compromise your values and your principles.”

I appreciate the sentiment that money does not buy happiness. But for the president of the United States to actively warn young adults away from economic ambition is remarkable. And he makes clear that he seeks to change our culture. ...

[T]he real tipping point was the financial crisis, which began in 2008. The meltdown presented a golden opportunity for the 30 percent coalition to attack free enterprise openly and remake America in its own image.

And it seized that opportunity. While Republicans had no convincing explanation for the crisis, seemed responsible for it and had no obvious plans to fix it, the statists offered a full and compelling narrative. Ordinary Americans were not to blame for the financial collapse, nor was government. The real culprits were Wall Street and the Bush administration, which had gutted the regulatory system that was supposed to keep banks in line.

The solution was obvious: Vote for a new order to expand the powers of government to rein in the dangerous excesses of capitalism.

It was a convincing story. For a lot of panicky Americans, the prospect of a paternalistic government rescuing the nation from crisis seemed appealing as stock markets and home prices spiraled downward. According to this narrative, government was at fault in just one way: It wasn’t big enough. If only there had been more regulators watching the banks more closely, the case went, the economy wouldn’t have collapsed.

Yet in truth, it was government housing policy that was at the root of the crisis. Moreover, the financial sector—where the crisis began and where it has had the most serious impact—is already one of the most regulated parts of our economy. The chaos happened despite an extensive, intrusive regulatory framework, not because such a framework didn’t exist.

More government—including a super-empowered Federal Reserve, a consumer protection watchdog and greater state powers to wind down financial firms and police market risks—does not mean we will be safe. On the contrary, such changes would give us a false sense of security, especially when Washington, a primary culprit in the crisis, is creating and implementing the new rules.

The statist narrative also held that only massive deficit spending could restore economic growth. “If nothing is done, this recession could linger for years,” Obama warned a few days before taking office. “Only government can provide the short-term boost necessary to lift us from a recession this deep and severe. Only government can break the cycle that is crippling our economy.”

This proposition is as expensive as it is false. Recessions can and do end without the kind of stimulus we experienced, and attempts to shore up the economy with huge public spending often do little to improve matters and instead chain future generations with debt.

Brook trout fishing, filmed by F.S. Armitage on June 6, 1900 somewhere along the Grand Trunk Railroad. 1:15 video.
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Who should replace Dennis Blair as National Intelligence Director? No one, proposes John Noonan at the Weekly Standard:

Unnecessary bureaucracy has a venomous effect on the national security establishment, whether it’s infantry or intelligence. The director of national intelligence, which has ballooned to a 1500-man supporting office, was a top down solution to a bottom up problem.

Admiral Blair was a casualty of Intelligence Community turf wars. Closing the DNI office would reduce unnecessary conflicts and duplication of effort. It’s too logical a course of action to be given serious consideration most likely though.
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Bruce Fleming says that standards at US service academies have been lowered for affirmative action and to allow academy teams to compete in the NCAA top divisions. He thinks standards should be restored or all the service academies closed down.
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Robin Hanson observes a unidirectional dynamic at work in progressive statism.

[I]n any area where we let humans do things, every once in a while there will be a big screwup; that is the sort of creatures humans are. And if you won’t decrease regulation without a screwup but will increase it with a screwup, then you have a regulation ratchet: it only moves one way. So if you don’t think a long period without a big disaster calls for weaker regulations, but you do think a particular big disaster calls for stronger regulation, well then you might as well just strengthen regulations lots more right now, even without a disaster. Because that is where your regulation ratchet is heading.

What if you can’t imagine ever wanting to weaken a regulation, just because it was strong and you’d gone a long time without a big disaster? Well then you apparently want the maximum possible regulation, which is probably to just basically outlaw that activity. And if that doesn’t seem like the right level of regulation to you, well then maybe you should reconsider your ratchety regulation intuitions.

Hat tip to the News Junkie.
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Ann Althouse chides the Washington Post: If you’re going to criticize the new social studies curriculum adopted by the Texas Board of Education, you’d better quote it or link it, not paraphrase it inaccurately.

Arnold Kling on the democrats’ “financial reform” bill. Let’s hope they can’t get any Republican votes.

My instinct is to call the proposed legislation a “blame deflection bill” rather than financial reform. But I admit that I have not read the whole bill. Has anyone?...

I have to rant about the notion of a consumer financial protection agency. I know that it’s axiomatic that poor people are helpless victims. But in the case of these mortgages, that is a really hard sell. The banks did not take from poor people. They gave to poor people. If you were lucky enough to get one of these exotic mortgages when house prices were still going up, then you got to reap a nice profit on your house. If you were not so lucky, you lost…close to nothing. I’m sorry, but if you borrowed up to 100 percent of the value of the house or more, then all you really lost were your moving expenses.

What about predatory lending? As I understand it, the idea of predatory lending is to saddle the borrower with an expensive mortgage so that you can foreclose on the property and sell it at a profit. How many times did that happen? Have you read of a single instance in the past three years where the bank made a profit on a foreclosure?

I am always ready to feel sorry for poor people because of their poverty. But I cannot feel sorry for somebody who was given a basically free option on a house and the option didn’t happen to come into the money.

The reason that those of us on the right are left somewhat speechless by the financial reform bill is that it seems to us to be based on premises that strike us as preposterous.

Hat tip to the News Junkie.