Monday, April 1, 2013
The recovery from the 2008 financial meltdown is much slower than that of other recessions in recent memory. Misguided federal government policy, particularly as it concerns two key sectors of the economy — finance and energy — is largely to blame.
While the energy industry is doing well because of the development of new oil and gas wells in North Dakota and elsewhere, it should be booming. Supplies of cheap natural gas might serve as the feedstock for a vastly expanded chemical industry, with all which that implies for economic growth, job creation and debt reduction.
The administration’s verbal assault on big oil is matched by its regulatory attack on coal. The federal bureaucracy makes it unnecessarily difficult to obtain permits for drilling on federal land and the continental shelf, while the way we treat our neighbor to the north by delaying the Keystone pipeline is a national disgrace.
Economic activity is also held back because some businesses cannot obtain the necessary financing. Again, federal government policy is to blame. Its legal arm has sued the big banks, accusing them of manipulating the London inter-bank lending rate (Libor), which determines the interest rate on consumer and other loans. Yet consumers were actually helped by this activity, since it made Libor lower than it otherwise would be. If this was a crime, it was a victimless crime.
During the financial meltdown, big banks were asked by the federal government to absorb some of their weaker brethren. Bear Stearns was acquired by J.P. Morgan and Countrywide Financial by Bank of America. Now these big banks are being sued for the sins of the entities they were asked to take over. This is not only unjust, but is also counter-productive.
When a bank faces a legal challenge, it sets aside reserves to cover any possible adverse outcome. Reserves, by definition, are not lent and thus cannot foster growth and job creation.
The federal bureaucracy has shifted into overdrive, and churns out pages of new regulation every day, constricting the actions of both the energy and financial industries. Sheer volume is no substitute for quality regulation, based on careful cost-benefit analysis.
It is hard to pull a wagon out of a ditch when two of your most powerful horses are nobbled.