The heated rhetoric coming in March 2017 about whether Congress should raise the debt ceiling will obscure the federal government’s real problem: an unprecedented increase in government spending and the future explosion of entitlement spending has created a fiscal imbalance today and for the years to come. No matter what Congress decides to do about the debt ceiling, the United States must implement institutional reforms that constrain government spending and return the country to a sustainable fiscal position.
The outstanding work of the GAO and agency IGs has never been more important than it is today given the massive financial and performance challenges facing the federal government. I commend the subcommittee for its efforts to ensure that this work gets the attention and action it deserves so that it can achieve maximum impact. I would be happy to provide any further assistance that might be useful to these efforts.
Citizens expect federal regulation to accomplish a lot of important things, such as protecting us from financial fraudsters, preventing workplace injuries, preserving clean air, and deterring terrorist attacks. Regulation also requires sacrifices; there is no free lunch. Depending on the regulation, consumers may pay more, workers may receive less, our retirement savings may grow more slowly due to reduced corporate profits, and we may have less privacy or less personal freedom. Given the important values at stake, Congress and regulatory agencies should craft regulations with full knowledge of their results. Decision-making in the dark should not be an option.
The explosive growth in federally backed loan and guaranty programs has been an appropriate focus of congressional oversight in recent years. The Office of Management and Budget (OMB) estimates the federal government supports over $3 trillion in loans and guarantees. Those loans and guarantees are often shrouded by indirect government support and unreasonable assumptions in government accounting practices. I submit that the Securities Investor Protection Corporation’s (SIPC) provision of securities custody insurance should be an appropriate part of that conversation.
Academic research and some anecdotal evidence suggests that the current budget rule of use it or lose it is not optimal and may be encouraging wasteful spending of taxpayer dollars. The question remains: If such spending is indeed wasteful, what can be done to reduce it?
My three-part message today is this. First, Congress should treat the budget process as a means, not an end, and enact reforms accordingly. Second, given the fiscal challenges facing the country, now is not the time for minor tweaking. Instead, now is the time to think big and craft a process that drives legislators to produce credible and sustainable fiscal policy by constraining federal spending both today and tomorrow. Third, any reform should include effective enforcement mechanisms, preferably constitutional in nature, to prevent the new process from suffering the same fate as the current one.
Thirty-five years ago, President Jimmy Carter began an experiment to, in his words, “regulate the regulators” to “eliminate unnecessary federal regulations.” His experiment was to form, through the Paperwork Reduction Act of 1980, the Office of Information and Regulatory Affairs within OMB to allow the president to gain control over the regulatory agencies. We have now had 35 years of experience to see if President Carter’s goals have been achieved. They have not.
Financial regulation should consist of clear, consistently enforced rules within which customers and financial institutions can freely interact. A well-functioning market enables people who need financing to obtain it efficiently and at a competitive price. Market forces reward financial companies that serve consumers well and discipline firms that fail to provide products and services in a form and at a price that consumers want.
Contrary to what you will hear from its supporters and beneficiaries, the Ex-Im Bank plays a marginal role in export financing—backing a mere 2 percent of US exports each year. The vast majority of exporters secure financing from a wide variety of private banks and other financial institutions without government interference or assistance. With US exports hitting record high levels, it is obvious that such financing is abundant and government assistance is superfluous.
The Dodd-Frank Wall Street Reform and Consumer Protection Act—does not make another crisis less likely. To the contrary, it sets the stage for another, worse crisis in the future. Government regulation—from bank regulation to housing policy to credit rating agency regulation—played a key role in the crisis. These policies shaped market participants’ behavior in destructive ways. Dodd-Frank continues that pattern.
Nate Silver, today’s most influential statistician and founder of the award-winning data website FiveThirtyEight, will join Tyler Cowen for a wide-ranging, intellectual dialogue as part of the Conversations with Tyler series.
Conversations about consumer credit often reflect utopian visions of the world. Many people imagine that a few tweaks to regulations can ensure that everyone has the money needed to feed, clothe, and shelter the family. According to this logic, if households need to borrow money, lenders will treat them fairly, charge little, and always be repaid. But no matter how hard we all try, a well-crafted regulatory framework cannot bring us this utopia. Deliberate, empirically informed regulators, however, can do much to preserve and expand consumers’ options along the nonbank-supplied small-dollar loan landscape.