MSNBC records the passing of another landmark on the road to ruin for the current administration.
The U.S. has tumbled further down a global ranking of the world’s most competitive economies, landing at fifth place because of its huge deficits and declining public faith in government, a global economic group said Wednesday.
The announcement by the World Economic Forum was the latest bad news for the Obama administration, which has been struggling to boost the sinking U.S. economy and lower an unemployment rate of more than 9 percent.
Switzerland held onto the top spot for the third consecutive year in the annual ranking by the Geneva-based forum, which is best known for its exclusive meeting of luminaries in Davos, Switzerland, each January.
Singapore moved up to second place, bumping Sweden down to third. Finland moved up to fourth place, from seventh last year. The U.S. was in fourth place last year, after falling from No. 1 in 2008.
The rankings, which the forum has issued for more than three decades, are based on economic data and a survey of 15,000 business executives.
California features a tremendous variety of natural features, climate zones, and human conditions. It is possible to go directly from the most intensely artificial urban environment to extremely hazardous wilderness in a surprisingly short time, as Californians frequently discover the hard way.
In addition to the tragic spectacles of the vegetarian who met the hungry mountain lion while joggng in the state park, or the suburbanite who neglected to prepare properly for high altitude temperatures and snow when traveling in the high mountains, or the optimist who thought he could drive fast and inattentively around Devil’s Slide, California offers as well distressing scenes in which ordinary Americans encounter to their great misfortune hypertrophied large urban regulatory machines sprawling into their lives.
One day, while I was still living on the SF peninsula in San Carlos, I went outside to get something from my car, and the pretty Oriental young lady who lived in the house across the street (whose name I did not even know, we had only been on waving-hello terms) ran crying into my arms.
My neighbor began sobbing out her story. A building inspector from the city of San Carlos had just left. He had disapproved of the nails used to attach the wire-mesh to the outside of the house which had already been covered with stucco cement and painted. Because the city didn’t like the contractor’s choice of nail, my neighbors were going to have to give up plans to move in. They would be obliged to tear off the entire new exterior surface of their house, and re-attach new wire mesh and stucco, and paint the whole thing all over again. It would take months to do the demolition and exterior covering again, and it would cost a lot of money.
Beyond the many tens of thousands of dollars all that extra construction was going to cost, they’d have to do an additional move (their lease was up) and pay thousands of unnecessary dollars a month for another rental house. My neighbors had been hit with six figures in extra expenses by the local building code enforcement system over a nail.
No wonder the poor girl was sobbing. She probably felt a lot like Richard III.
I don’t doubt that there is some possibility that the use of a less-than-optimal nail to attach that wire mesh could result in problems. The mesh might gradually loosen, and come away from the wall of the house in places over time. Movement might occur, and the homeowner might find that portions of his stucco surface developed cracks. The poor homeowner might have to do some repairs one day. But, if every one of those nails fell right out, and the entire stucco coating on all four sides of the house fell right down onto the oleander bushes, it would be no skin off the nose of the city of San Carlos. San Carlos would not be paying for the repairs.
Building codes are represented to be necessary to protect the public. In urban California, at least, there is a reasonable argument for earthquake protection to be a factor taken into account in building standards. But codes obviously go characteristically far beyond addressing potential hazards to the general community. Building codes function to prevent competition from outside licensed guild-member businesses. Building codes protect the interests of unions. Building codes also operate as a secondary system of zoning, to protect the interests and impose the preferences of existing property owners. Building codes, finally, are also one more revenue source and a means of creating power.
In a lot of places, New York City would be a classic example, building codes describe an absolutely unattainable dream of perfection which never does and never can exist in the real world. Consequently, all buildings and all building owners are always guilty and in violation of lots of things. Officialdom can crack down and enforce the entire code any time it chooses. Make some kind of waves for officialdom, and watch the inspectors arrive, whip out their notepads and start writing.
All this is in reference to a horrifying LA Times story, describing how the long arm of big city city building regulation has, in recent years, begun reaching out to crush and destroy little people living far away in remote high desert locations which, unfortunately for them, nonetheless fall under the jurisdiction of the County of Los Angeles. Be sure to take your high blood pressure medication before reading the article or watching the video.
Big Brother is coming soon to take away your 100w incandescent light bulbs, and he’s planning to remove the rest of them by 2014. Virginia Postrel explains that Congress and George W. Bush did one of their crony capitalism deals at the expense of your freedom of choice (and your interior decor).
When compact fluorescent light bulbs were new, promoters sold them as a market-oriented, win-win proposition. They were like “lite†beer: the same great illumination, for a fraction of the electric bill.
But, as with beer, not everyone was convinced. Some consumers didn’t like the high out-of-pocket cost. (A basic CFL runs about three times the initial price of the equivalent incandescent.) Some didn’t like that bulbs could take a while to build up to full intensity.
Some didn’t like the occasional flicker. And a lot didn’t like the light. Its bluish cast lacks the warmth of traditional incandescents and gives skin tones a somewhat deathly tinge. “Fluorescent is just not attractive,†a resolute restaurant designer once told me. “I don’t care what they say.†…
By the end of last year, CFLs had managed to capture only 25 percent of the general-purpose light-bulb market — a decent business, sure, but hardly the radical transformation evangelists were going for. Most Americans, for most purposes, have stuck to traditional incandescents.
So the activists offended by the public’s presumed wastefulness took a more direct approach. They joined forces with the big bulb producers, who had an interest in replacing low-margin commodities with high-margin specialty wares, and, with help from Congress and President George W. Bush, banned the bulbs people prefer.
It was an inside job. Neither ordinary consumers nor even organized interior designers had a say. Lawmakers buried the ban in the 300-plus pages of the 2007 energy bill, and very few talked about it in public. It was crony capitalism with a touch of green.
The Wall Street Journal finds Senator Chuck Schumer’s recent criticism of the regulatory impact on New York City’s financial industry of the Dodd-Frank bill, which he himself supported, to be an example of a recognizable pattern of political deception.
[W]ith Mr. Schumer, who voted to inflict this burden on an economy still struggling with high unemployment and slow growth, this is an all-too familiar pattern of behavior that can be summarized as follows:
Step One: Vote for destructive law.
Step Two: Complain about said law, while doing nothing to repeal it.
Step Three: Raise campaign money by showing to business community the volume of said complaints.
It was almost easy to forget that Mr. Schumer helped enact the 2002 Sarbanes-Oxley financial accounting law when he spent much of the rest of the decade complaining about the stifling burden of financial regulations.
Looking forward, we can expect Mr. Schumer to express at myriad fundraising events his sympathy for those living with the consequences of Dodd-Frank. It’s a good bet that he’ll also claim that, if not for his valiant efforts on Capitol Hill, the financial reform would have been so much worse. And expect New York’s financial elite to keep writing checks.
There’s a word for people who keep falling for this: suckers.
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.
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.
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.
“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.â€
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.).
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)
By JDZ Comments Off on America Gets Financial Reform | Permalink
