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.
Policymakers who are interested in supporting the entrepreneurs and companies that will deliver the next generation of energy supplies and products should focus their attention on correcting the federal government’s hostile tax climate and dispense with the futile hopes of outsmarting the marketplace.
One reason it has been hard to address regulatory accumulation is the difficulty of identifying nonfunctional rules—rules that are obsolete, unnecessary, duplicative, or otherwise undesirable. An independent group or commission—not regulatory agencies—seems required to successfully identify nonfunctional rules.
Debates over regulatory process reform often take a distinctly partisan tone. But the fundamental conflict in the debate over regulatory process reform is not Republicans versus Democrats, liberals versus conservatives, or even business versus the public. It’s knowledge versus ignorance. Decision makers should choose knowledge over ignorance.
As the holiday season approaches, there are predictions that upwards of 1,000,000 drones will be purchased by Christmas. The FAA is currently working to create regulations on these consumer drones. Eli Dourado discusses these regulations and what the FAA should do on C-SPAN’s Washington Journal.
The Midas Paradox is a landmark treatise that solves mysteries that have long perplexed economic historians, and corrects misconceptions about the true causes, consequences, and cures of macroeconomic instability. Like Milton Friedman and Anna J. Schwartz’s A Monetary History of the United States, 1867–1960, it is one of those rare books destined to shape all future research on the subject.