Topic: Government and Politics

New Poll On Dodd-Frank and CFPB Tells Us Poll’s Creators Like Dodd-Frank and the CFPB

There’s been some buzz this week about a new poll that, according to its creators, shows overwhelming support for Dodd-Frank and the Consumer Financial Protection Bureau (CFPB). A stunning 74 percent of respondents, the creators claim, support Dodd-Frank while 77 percent support the CFPB.

But has not been as widely reported is how skewed the questions were. Given the questions, it’s surprising there was not more support for Dodd-Frank and the CFPB. 

Consider the question that resulted in the 74 percent support Dodd-Frank figure:

Now please listen to this description of the Wall Street Reform law that was passed after the financial crisis. In addition to requiring federal oversight of a larger range of financial companies, this law also prohibits banks from certain risky practices, and created the Consumer Financial Protection Bureau to fight against abusive financial practices that hurt consumers. It also bans taxpayer-funded bailouts of large banks and financial companies and, instead, sets up a system where investors rather than taxpayers bear the losses of bank failures. Please tell me whether, overall, you favor or oppose this law.

No more taxpayer-funded bailouts? No more socialized losses and privatized gains? Sign me up! I would love a law that does this. Except the very reason that many people, including me, oppose Dodd-Frank is because of the belief that it does just the opposite, that it entrenches the too big to fail concept and makes bailouts more likely down the road. The debate over Dodd-Frank is not pro-bailouts versus anti-bailouts, or pro-accountability for bad business choices versus anti-accountability. No one is advocating for bailouts or taxpayer-funded losses. The debate is over whether the particular provisions in Dodd-Frank are likely to lead to more bailouts or fewer, whether the law increases the chances of another crisis or decreases it. 

This question also lobs a number of very nuanced and deeply controversial terms at the respondent – words like “risky” and “abusive” – with almost no context.  What is the optimal level of “risk” for financial institutions, who should assess “riskiness” and how risk can be adequately hedged are questions at the core of ongoing debates over the cause of the 2009 financial crisis and future policy considerations. Labeling a set of practices as “risky” is conclusory and deliberately ignores any existing controversy.

ObamaCare: What Trump Should Do Now

With President Donald Trump frustrated all over again with congressional Republicans’ inability to coalesce around a bill repealing and replacing ObamaCare, it seems like a good time to dust off this National Review Online column where I offer 14 ways Trump can pressure Congress and build public support for legislation:

1. End Congress’s illegal ObamaCare exemption.

2. End ObamaCare’s unconstitutional cost-sharing subsidies.

3. End ObamaCare’s illegal “reinsurance” payments.

4. Block Big Insurance’s “risk-corridor” raid on the Treasury.

5. Investigate the Obama administration’s illegal spending.

6. Allow freedom of conscience and choice in contraceptives coverage.

7. Illustrate how Americans can avoid ObamaCare penalties.

8. Illustrate how ObamaCare makes it easier than ever for people to wait until they are sick to purchase coverage.

9. Publish ObamaCare’s vital signs.

10. Release the documents.

11. Praise states that refused to implement ObamaCare.

12. Direct states to prepare for ObamaCare repeal.

13. Renounce IPAB.

14. Let seniors opt out of Medicare without losing Social Security benefits.

To its credit, the Trump administration has been doing some of #9. But not enough. Read here for more.

Privatization, Innovation, and Exports

Congress should privatize federally-owned businesses such as Amtrak, the postal service, and the air traffic control system. Privatization would cut costs and improve customer service, as I discuss here. It would also boost U.S. innovation and exports.

Typically, federal government businesses do not export their goods, services, or technologies. They have no incentive to do so. They are content to live the quiet life, and they have little reason to innovate or seek foreign markets. As such, keeping business activities trapped inside of bureaucracies restricts growth opportunities for the economy.

In a new article on air traffic control (ATC), Rui Neiva of the Eno Center illustrates the theme. He discusses how the privatized Canadian ATC company developed and implemented “electronic flight strips” years ago, while our government ATC bureau is still struggling to adopt this advance.

By 2009, all NAV CANADA facilities, including those serving general aviation, were equipped with electronic flight strips. Given that NAV CANADA is both an operator and a manufacturer of equipment for ATC, the technology that they developed has been sold to multiple countries worldwide, including Australia, Denmark, Dubai, Italy, and United Kingdom.

Canada privatized its ATC system in 1996 as Nav Canada. The company is a leader in ATC innovation and has developed numerous technologies, such as the flight strips, that it exports abroad. Bob Poole noted, “The technical expertise at Nav Canada has led to a thriving business marketing innovative ATC hardware and software and advising other air navigation service providers on modernization.”

Nav Canada earns income from foreign contracts and royalties, which in turn helps fund its ongoing research. Another interesting byproduct of Canadian privatization is Searidge Technologies, which is a Canadian company that is developing “remote tower” services for ATC systems. Nav Canada was an early investor in Searidge and today is co-owner.

Now consider another industry run by our government: currency printing. Our money is printed by the U.S. Bureau of Engraving and Printing. But Canada has long contracted out the printing of its money to the Canadian Bank Note Company and other firms.

Canadian Bank Note Company has used its domestic expertise as a base to go global, and today it prints money, stamps, and high-end security products for clients in 60 counties. Meanwhile, the Bureau of Engraving and Printing supplies only the U.S. market and does not export.

Government agencies fall behind because they are cut off from global markets and the need to compete. Look at the U.S. government-made bills in your wallet. Boring! Now look at this cool Canadian fiver or this New Zealand fiver, both manufactured from high-tech plastics by the Canadian Bank Note Company. The NZ bill won “international bank note of the year” in 2015.

The lesson is that we deny opportunities to American entrepreneurs when we keep businesses entombed in the government. Moving ATC, currency printing, and other activities to the private sector would allow American workers to capitalize on their skills and sell their innovations worldwide.

More on air traffic control here.

More on privatization here.

Join me, Michael Sargent, and Rep. Tom Massie at the Heritage Foundation tomorrow to discuss air traffic control reform.

 

Liu Xiaobo: A Voice of Freedom

The death of Liu Xiaobo from liver cancer on July 13, under guard at a hospital in Shenyang, marks the passing of a great defender of freedom—a man who was willing to speak truth to power. As the lead signatory to Charter 08, which called for the rule of law and constitutional government, Liu was sentenced to 11 years in prison for “inciting the subversion of state power.” Before his sentencing in 2009, Liu stood before the court and declared, “To block freedom of speech is to trample on human rights, to strangle humanity, and to suppress the truth.” With proper treatment and freedom, Liu would have lived on to voice his support for a free society. 

While Liu’s advocacy of limited government, democracy, and a free market for ideas won him the Nobel Peace Prize in 2010, China’s leadership viewed him as a criminal and refused to allow him to travel to Oslo to receive the award. Instead, the prize was placed on an empty chair at the ceremony, a lasting symbol of Liu’s courage in the face of state suppression. Beijing also prevented liberal Mao Yushi, cofounder of the Unirule Institute, from attending the ceremony to honor Liu. 

IdealMentre

The mistreatment of Liu, and other human rights’ proponents, is a stark reminder that while the Middle Kingdom has made significant progress in liberalizing its economy, it has yet to liberate the minds of the Chinese people or its own political institutions. 

The tension between freedom and state power threatens China’s future. As former premier Wen Jiabao warned in a speech in August 2010, “Without the safeguard of political reform, the fruits of economic reform would be lost.” Later, in an interview with CNN in October, he held that “freedom of speech is indispensable for any country.”

Article 33, Section 3, of the PRC’s Constitution holds that “the State respects and protects human rights.” Such language, added by the National People’s Congress in 2004, encouraged liberals to test the waters, only to find that the reality did not match the rhetoric.

The Chinese Communist Party pays lip service to a free market in ideas, noting: “There can never be an end to the need for the emancipation of individual thought” (China Daily, November 16, 2013). However, Party doctrine strictly regulates that market. Consequently, under “market socialism with Chinese characteristics,” there is bound to be an ever-present tension between the individual and the state.

In an interview with the Wall Street Journal (September 22, 2015), President Xi argued that “freedom is the purpose of order, and order the guarantee of freedom.” The real meaning of that statement is that China’s ruling elite will not tolerate dissent: individuals will be free to communicate ideas, but only those consistent with the state’s current interpretation of “socialist principles.” 

Locking Up Kingpins Causes Violence

This story from the WSJ claims that 

the extradition of Joaquín “El Chapo” Guzmán, Mexico’s long-dominant drug lord, has led to an explosion of violence in his home state of Sinaloa, the birthplace of the country’s narcotics industry.

Rival factions are fighting over Mr. Guzmán’s billion-dollar empire as he awaits trial in solitary confinement inside a high-security prison in New York. He was extradited to the U.S. in January on drug-trafficking and murder charges.

This explanation for increased violence in Mexico is exactly what one would predict from this Cato Research Brief, by economists Jason Lindo and Maria Padilla-Romo:

We find that the capture of a [Drug Trafficking Organization] (DTO) leader in a municipality increases its homicide rate by 80 percent, and this effect persists for at least 12 months. Consistent with the notion that the kingpin strategy destabilizes an organization, we also find that these captures significantly increase homicides in other municipalities with the same DTO presence. In particular, we find that homicide rates in neighboring municipalities with the same DTO presence rise 30 percent in the six months after a kingpin capture before returning to expected levels. Further, kingpin captures cause homicide rates to grow over time (to 18 percent above expected levels 12 or more months after a capture) for more-distant municipalities with the same DTO presence. We find little evidence of increased homicide in neighboring municipalities where the captured leader’s DTO did not have a presence.

Disputes between rival suppliers occur in all industries; but in legal ones, the disputes take the form of advertising wars and lawsuits, not violence. See also this old paper of mine on the same subject.

Trump Administration Proposes Massive Cuts to TSA VIPR Teams

I think this is the first official act of the Trump administration that I can honestly say I can get behind, and enthusiastically. According to the Washington Post, Trump’s budget plan would dramatically cut funding for TSA’s roving Fourth Amendment violation squads, better known as “Visible Intermodal Prevention and Response” (VIPR) teams. From the Post story:

Under the proposed budget, VIPR funding would drop to $15 million from $58 million and the number of VIPR teams would be cut to 8 from 31, with 277 full-time positions being eliminated, according to the report. The Democratic staff members of the Senate Homeland Security Committee say in the report they were told that even though federal officials say eight VIPR teams can “maintain an acceptable security posture,” the three-quarters funding cut will “limit” the presence of teams nationwide.

I would’ve preferred the complete abolition of these ineffectual, costly teams–which have never stopped a single terrorist attack but which have often caused havoc at the transportation hubs they’ve haunted. But these cuts are a welcome, significant step in the right direction, and the administration is to be commended for making this move.

The International Monetary Fund Accidentally Provides Strong Evidence for the Laffer Curve

As a general rule, the International Monetary Fund is a statist organization. Which shouldn’t be too surprising since its key “shareholders” are the world’s major governments.

And when you realize who controls the purse strings, it’s no surprise to learn that the bureaucracy is a persistent advocate of higher tax burdens and bigger government. Especially when the IMF’s politicized and leftist (and tax-free) leadership dictates the organization’s agenda.

Which explains why I’ve referred to that bureaucracy as a “dumpster fire of the global economy” and the “Dr. Kevorkian of global economic policy.”

I always make sure to point out, however, that there are some decent economists who work for the IMF and that they occasionally are allowed to produce good research. I’ve favorably cited the bureaucracy’s work on spending caps, for instance.

But what amuses me is when the IMF tries to promote bad policy and accidentally gives me powerful evidence for good policy. That happened in 2012, for example, when it produced some very persuasive data showing that value-added taxes are money machines to finance a bigger burden of government.

Well, it’s happened again, though this time the bureaucrats inadvertently just issued some research that makes the case for the Laffer Curve and lower corporate tax rates.

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