When your teenager drives drunk and wrecks the car, and you keep giving him a do-over—
repairing the car and handing him back the keys—he’s going to keep driving
drunk. Washington keeps giving the bad banks and Wall Street firms a do-over. Here are
the keys. Keep driving. The story always ends with a crash.

I’m mad at Wall Street. But I’m a lot madder at the people who gave them the keys to
drive our economy off the cliff.

The federal government does, however, have a problem with big compensation packages at private banks like Bank of America and Citigroup, even for new executives and talented managers who had nothing to do with any financial mismanagement.  Obama’s pay czar, Ken Feinberg, a major donor to liberal politicians like Senator Chris Dodd (who recommended Feinberg for the job after he gave Dodd more than $9000), is now chopping compensation more at basically self-supporting institutions like Bank of America than at completely-bailed out entities like Chrysler.  (Many expect Chrysler to go under despite a $70 billion auto bailout.  Even the recently departed car czar, Rattner, admits Chrysler should perhaps have been allowed to go under, from a coldly economic point of view, given its gross mismanagement and dim prospects. Bank of America’s recently departed ex-CEO was a moderate Republican; by contrast, Chrysler is owned mostly by the left-wing United Auto Workers Union, which received majority ownership from the Obama administration at taxpayer expense, through a politicized bankruptcy process).

Some of the “bailed-out” banks subject to the pay czar weren’t really bailed out: they gave the federal government preferred stock in exchange for federal bailout money only under duress, after they were told that for them not to take federal bailout money would stigmatize the banks that truly needed it, and that if they failed to take the money, bank regulators would make their lives hell. As the Treasury Secretary told the banks, “if a capital infusion is not appealing, you should be aware your regulator will require it in any circumstance.” Regulators also forced Bank of America to take over failing investment bank Merrill Lynch, and pressured it to hide the resulting losses from its shareholders.

Feinberg’s actions have already left taxpayers worse off by forcing Citigroup to get rid of a profitable subsidiary. As finance professor Roy C. Smith noted in Sunday’s Washington Post, “Feinberg’s actions . . . are not going to improve either the government’s chances of getting its money back or the prospects of repairing these damaged companies. Because of his recommendations, Citigroup agreed to sell its profitable Phibro unit at an extremely low price of only one or two times earnings in order to avoid having to pay a talented trader a $100 million contractual share of the profits he had earned. The most successful of the remaining employees of Citigroup, AIG and Bank of America have been given an incentive to leave their posts, and the firms will be constrained in hiring replacements.”

Many competent executives whose pay is threatened by the pay czar are now leaving for other firms that (for the moment) are beyond his reach. The result is lousier management at banks that the FDIC insures, and that the federal government now owns stock in.

The pay czar’s political patron, Senator Dodd, received sweetheart loans from the reckless, bankrupt subprime lender Countrywide, and a massive gift from Edward Downe, in the form of a luxurious “cottage” in Ireland he received in a “cut rate real estate deal” for hundreds of thousands of dollars less than fair market value.

Banks will now be pressured to make even more risky, low-income loans. Obama has sent to Congress his proposal to create a politically correct entity called the Consumer Financial Protection Agency. “The agency would be in charge of enforcing the Community Reinvestment Act, a law that prods banks to make loans in low-income communities.”

Government pressure on banks to make low-income loans was a key reason for the mortgage meltdown and the financial crisis. Yet Obama’s disturbing proposal would empower the new agency to enforce the Community Reinvestment Act without regard for banks’ financial safety and soundness.  The Community Reinvestment Act was a key contributor to the financial crisis.

The mortgage crisis was also caused by the reckless government-sponsored mortgage giants (”GSEs”) Fannie Mae and Freddie Mac, and by federal affordable-housing mandates.

But Obama’s proposed financial rules overhaul does absolutely nothing about Fannie Mae and Freddie Mac, admits Obama’s Treasury Secretary, Timothy Geithner, even though he admits that “Fannie and Freddie were a core part of what went wrong in our system.” (The government-sponsored mortgage giants Fannie Mae and Freddie Mac went broke, costing taxpayers perhaps $200 billion.  Fannie Mae apparently has engaged in massive accounting fraud, and has used intimidation to fight reform).

Worse, Obama’s plan is “largely the product of extensive conversations” with two lawmakers responsible for the corrupt status quo, Chris Dodd and Barney Frank, and it expands the reach of regulations that have been used by left-wing groups to extort payoffs from banks.

Answer: Way too much government!

In a new CEI paper, One Nation, Ungovernable?, Clyde Wayne Crews lays out an agenda for setting America on the path to economic recovery. From lifting burdensome regulations and restrictions on executive compensation to fostering competition and restraining federal spending, Crews calls for an end to the “bailout culture” that’s spread throughout the capitol, and a return to more responsible policies that promote growth and liberty.

As Crews notes, “If government intervention were stimulative, the nation should be overflowing with wealth and job creation already.” Obviously, the folks on Capitol Hill got it wrong. Wealth comes from policies that unleash the creativity and industriousness of private citizens and companies, not from massive regulation or wasteful government  “investment.”  Deregulation and markets encourage competition and growth and create jobs.

Calling all legislators: please take a few moments and read One Nation, Ungovernable? Fret not, at only six pages, it’s far shorter than most of the tax-and-spend bills you’ll see this year.

As Michael Barone notes, Congress is now seeking to pass costly legislation that could reinflate the housing bubble, threatening future financial meltdowns.

The Obama administration is also busy promoting the junky, risky mortgages that fueled the housing bubble, showing that it has learned nothing from history.

Obama has sent to Congress his proposal to create an entity called the Consumer Financial Protection Agency. “The agency would be in charge of enforcing the Community Reinvestment Act, a law that prods banks to make loans in low-income communities.”

Government pressure on banks to make low-income loans was a key reason for the mortgage meltdown and the financial crisis. Yet Obama’s proposal would empower the new agency to enforce the Community Reinvestment Act without regard for banks’ financial safety and soundness.  The Community Reinvestment Act was a key contributor to the financial crisis.

The mortgage crisis was also caused by the government-sponsored mortgage giants (”GSEs”) Fannie Mae and Freddie Mac, and by federal affordable-housing mandates.

But Obama’s proposed financial rules overhaul does absolutely nothing about Fannie Mae and Freddie Mac, admits Treasury Secretary Timothy Geithner, even though he admits that “Fannie and Freddie were a core part of what went wrong in our system.”

Worse, Obama’s plan is “largely the product of extensive conversations” with two lawmakers responsible for the corrupt status quo, Chris Dodd and Barney Frank, and it expands the reach of regulations that have been used by left-wing groups to extort pay-offs from banks.

As Michael Barone notes, Congress is now seeking to pass costly legislation that could reinflate the housing bubble, threatening future financial meltdowns.

The Obama administration is also busy promoting the junky, risky mortgages that fueled the housing bubble, showing that it has learned nothing from history.

Obama has sent to Congress his proposal to create a politically-correct entity called the Consumer Financial Protection Agency. “The agency would be in charge of enforcing the Community Reinvestment Act, a law that prods banks to make loans in low-income communities.”

Government pressure on banks to make low-income loans was a key reason for the mortgage meltdown and the financial crisis. Yet Obama’s disturbing proposal would empower the new agency to enforce the Community Reinvestment Act without regard for banks’ financial safety and soundness.  The Community Reinvestment Act was a key contributor to the financial crisis.

The mortgage crisis was also caused by the reckless government-sponsored mortgage giants (”GSEs”) Fannie Mae and Freddie Mac, and by federal affordable-housing mandates.

But Obama’s proposed financial rules overhaul does absolutely nothing about Fannie Mae and Freddie Mac, admits Obama’s Treasury Secretary, tax cheat Timothy Geithner, even though he admits that “Fannie and Freddie were a core part of what went wrong in our system.”

Worse, Obama’s plan is “largely the product of extensive conversations” with two lawmakers responsible for the corrupt status quo, Chris Dodd and Barney Frank, and it expands the reach of regulations that have been used by left-wing groups to extort pay-offs from banks.

The CARD Act has also wiped out many cash-back and rewards programs and rebates on credit cards, something earlier chronicled here.  Despite that fact, its passage was trumpeted by President Obama and liberal congressional leaders, who are engaging in a form of class warfare against financially responsible people.

Earlier, the government pushed through $250 billion in mortgage bailouts, to bail out even reckless high-income borrowers, and forced financial institutions the government took over in the name of fiscal responsibility, like Freddie Mac, to run up billions in losses bailing out irresponsible borrowers.  It also pushed through $70 billion in auto bailouts to enrich the United Auto Workers union, bailouts that ripped off taxpayers and pension funds and illegally diverted funds from the bank bailout to an auto bailout.  (The bailouts would not even have been necessary if the companies had obtained regulatory relief and greater wage concessions, and may not even succeed, requiring billions more in taxpayer dollars by 2010.)

In today’s Washington Post, Allan Sloan writes about how the government has deliberately ripped off responsible people to bail out irresponsible people over the last year, by spending trillions of dollars to force down interest rates.  That has resulted in extremely low interest rates on savings accounts and bonds, while also, to a lesser extent, reducing interest rates paid by irresponsible borrowers, despite their rising default rates.

Congressional leaders are ignoring warnings from experts across the political spectrum, such as conservative Peter Wallison’s October 16 piece in the Wall Street Journal, titled “Barney Frank, Predatory Lender,” and liberal Charles Lane’s recent piece in the Washington Post, “Doubling Down On the Wrong Housing Policy.”  (Wallison, a banking expert, prophetically warned for years about the risky practices of the government-sponsored mortgage giants, Fannie Mae and Freddie Mac, which were at the core of the financial crisis, and later had to be bailed out by taxpayers at a cost of around $200 billion.)

The Obama administration is also busy promoting the junky, risky mortgages that fueled the housing bubble, showing that it has learned nothing from history.

In the Washington Examiner, Meghan Cox Gurdon explains how housing policies affected two sisters, one responsible and one irresponsible.  The financially-irresponsible sister, who was unable to manage her own finances, and had recently defaulted on a small car loan, ended up getting a taxpayer-subsidized mortgage.  Meanwhile, the responsible sister and her husband were unable to obtain a mortgage loan, despite having an “excellent credit rating” and money for a large downpayment.

(The Obama administration doesn’t seem to have learned history’s lessons overseas, either.  White House Communications Director Anita Dunn cites as her favorite political philosopher the Chinese communist tyrant Mao Zedong. That may explain why it has sometimes pursued left-wing policies overseas.)

President Obama is also pushing for financial regulations that reinforce the worst features of the status quo.  They would increase pressure on lenders to make the risky, low-income loans that helped spawn the financial crisis.  At the same time, they would worsen the credit crunch by shutting down banking operations known as “industrial loan corporations,” that are convenient for consumers.  Earlier, Obama backed a new law that is wiping out many credit-card rewards programs and rebates, and leading to the return of annual fees on some credit cards.

Even though Obama’s proposals would lead to even more junky loans in the future, both he and Senate banking chairman Chris Dodd (D-CT) claim that his proposals would fight the “status quo.”  But they are part of the status quo.  Dodd is famously corrupt, having received sweetheart loans from the reckless, bankrupt subprime lender Countrywide, and having received a massive gift from a crook, Edward Downe, in the form of a luxurious “cottage” in Ireland he received in a “cut rate real estate deal” for hundreds of thousands of dollars less than fair market value.  Obama was the third biggest recipient in Congress of campaign contributions from the government-sponsored mortgage giants Fannie Mae and Freddie Mac, which went broke, costing taxpayers perhaps $200 billion.  (Fannie Mae was a corrupt bully that engaged in massive accounting fraud and used intimidation to fight reform.)

Banks will now be pressured to make even more risky, low-income loans. Obama has sent to Congress his proposal to create a politically-correct entity called the Consumer Financial Protection Agency. “The agency would be in charge of enforcing the Community Reinvestment Act, a law that prods banks to make loans in low-income communities.”

Government pressure on banks to make low-income loans was a key reason for the mortgage meltdown and the financial crisis. Yet Obama’s disturbing proposal would empower the new agency to enforce the Community Reinvestment Act without regard for banks’ financial safety and soundness.  The Community Reinvestment Act was a key contributor to the financial crisis.

The mortgage crisis was also caused by the reckless government-sponsored mortgage giants (”GSEs”) Fannie Mae and Freddie Mac, and by federal affordable-housing mandates.

But Obama’s proposed financial rules overhaul does absolutely nothing about Fannie Mae and Freddie Mac, admits Obama’s Treasury secretary, tax cheat Timothy Geithner, even though he admits that “Fannie and Freddie were a core part of what went wrong in our system.”

Worse, Obama’s plan is “largely the product of extensive conversations” with two lawmakers responsible for the corrupt status quo, Chris Dodd and Barney Frank, and it expands the reach of regulations that have been used by left-wing groups to extort pay-offs from banks.

Most of Wall Street came to government asking for a bailout when the government-created housing bubble popped.

The Big Three automakers also went to Washington for largesse when their customers came to prefer Toyotas and Hondas.

Health insurance companies stand to make a killing if Obamacare passes.

T. Boone Pickens and Al Gore would make millions from environmental legislation.

Ludwig von Mises explained the reason for all of this corrupt behavior with a single sentence back in 1949: “It is precisely the fact that the market does not respect vested interests that makes the people concerned ask for government interference.”
-Human Action, 4th Edition, p. 337.

That’s much higher than the Obama administration predicted unemployment would rise, if Congress had refused to pass his $800 billion stimulus package.  The administration claimed unemployment would rise to 8 percent without a stimulus.

Small businesses are finding it more difficult than ever to borrow badly needed money to meet their payrolls.  New financial regulations backed by the administration are contributing to a terrible credit crunch.  Meanwhile, the wealthy Wall Street investment bank Goldman Sachs, perhaps the biggest donor to liberal politicians, received billions of dollars it didn’t even need from the taxpayers’ $170 billion bailout of AIG.

The administration claimed that the stimulus package would deliver a short-run “jolt” that would quickly lift the economy, but unemployment rose very rapidly after its passage, and the package has actually destroyed thousands of jobs in America’s export sector.

Countries that refused to adopt big stimulus packages have fared better than those that imitated Obama. And the biggest-spending countries have suffered worst in the recession.

President Obama claimed the stimulus was needed to prevent an “irreversible decline,” but the Congressional Budget Office said it would actually shrink the economy “in the long run.”  It subsidizes lots of waste, corruption, and welfare, and repeals welfare reform.   It also contains racial set-asides (which are costly) and prevailing-wage rules (which will waste $17 billion).

7-Eleven has fine stores that offer many conveniences to their customers, but in this case, they are trying to force down the throats of American consumers a “big gulp” of big government. If Congress acts on 7-Eleven’s misleading petition to put price controls on interchange fees, consumers will pay the price through the reduction of reward programs such as frequent flier miles, and the possible return of annual fees. Credit unions and community banks will pay the price too in higher costs that will make it more difficult to offer cards to their customers, forcing savers to go to big banks if they want the convenience of credit and debit cards.

Contrary to the spin of the 7-Eleven and other big retailers, interchange fees, also called “swipe fees,” are only levied on merchants, and none of major legislation before the U.S. Congress would require that retailers pass on one penny of their resulting savings on interchange fees to consumers. And Australia’s recent experience with interchange price controls resulted in no tangible benefits and plenty of added costs for consumers down under.

John Simon, a top regulator at the Reserve Bank of Australia, recently told a conference of the Federal Reserve Bank of Chicago, that there was no evidence of retailer savings being passed on to Australian consumers, according to the Credit Union Times. Yet the Australian credit card holders faced plenty of costs to “make up for” the retailer costs in terms of higher fees and fewer rewards such as frequent flier miles, according to a study by the U.S. Government Accountability Office.

Community banks and credit unions, which have lower profit margins on their credit and debit card offerings, would also lose out. In Australia, the Credit Union Times reports, “a cap on card interchange similar to one promoted by some U.S. retailers has turned Australian CU card programs from being contributors to their bottom lines to net money losers.” Similarly, Mike Clayton, head of Champion Credit Union in the small town Canton, North Carolina, says price controls on interchange fees could “put us into a deficit on that card program.”

There are a variety of options for retailers in credit card payment services, such as new online methods of payment, to ensure competitive pricing. CEI also supports expanding the ability of retailers to form their own affiliated banks, or industrial lending companies, to do their own card processing if they so choose.

But lawmakers should also realize that credit and debit card processing is not free, and retailers would not be accepting cards if they did not lead to more purchases in stores and reduce the costs of alternatives such as carrying cash. Before credit cards were so prevalent, expensive armored cars hauling cash from retail stores were a common fixture.

In short, there is no such thing a free lunch, and lawmakers should not enable 7-Eleven and other retailers to soak consumers with more lunch fees.

In the case of our automotive industry — and most of the complex industrial activities where we have seen bottom-up monopolization — we can choose between two ways of making these systems once again financially and physically stable.

One is to treat these industries as the semi-monopolized utilities they now are and create a single sovereign body to regulate them from the top down, in a way that ensures their physical and financial stability. Such a regulator can be public (the government) or it can be private (a cartel of leading firms tasked with ensuring that all players share all costs fairly).

The alternative is to reform the various legal regimes (including trade and corporate governance as well as antitrust) that determine how corporate managers structure the industrial systems on which we depend, in order to ensure real “competition” both among giant lead firms like Ford and Toyota and among the companies that manufacture components for them. The immediate goal would be to guarantee that no group, either a private business corporation or a nation state, can ever seize control of any industrial activity on which we depend, no matter how small. The natural byproduct of such a system would be redundancy and resiliency.

Nowhere does Lynn mention how consumers can benefit when firms take advantage of economies of scale, the unsustainable labor contracts endemic in the U.S. auto industry, increased barriers to entry resulting from government regulation, the steadily declining relevance of domestic industry concentration and antitrust law in a globalizing world; all things that should be addressed before tackling this complicated issue. Instead, he proposes “we” either create new stringent and arbitrary competition regulations that would likely drive more U.S. industry overseas, or attempt to implement an incredibly politically-infeasible and economically-disastrous trade regime.

Moreover, his flawed analysis ignores the historical correlation between monopoly/oligopoly industries and government protection (e.g., telecommunications and commercial air travel), that antitrust laws which penalize firms for efficiency gains are counterproductive (and just plain stupid), and that these firms rarely sustain their market power in the long-run without government protection.

Lynn also fails to note how difficult it is to determine the optimal level of competition within a given industry, let alone the global economy. Take, for example, an insurer, which requires a large risk pool to operate in an actuarially sound manner. Given that generating the initial financing for said pools is a significant natural barrier to entry, it follows that industry concentration would likely be higher than those industries with less entry friction. This determination would need to take place for every industry, and be constantly re-evaluated given market dynamics. Those who didn’t sleep through their introductory econ courses should see how ridiculous Lynn’s “solution” is.

Lynn does dance around an important point: that the Big 3 have been failing miserably at efficiently managing their production processes for decades. But how this suggests that the United States (and the rest of the world) should rewrite the law and increase protectionism for their benefit is beyond me.

It has issued a gag order to Humana, a health insurer that provides Medicare Advantage services, ordering it not to tell customers about how Obamacare could reduce the availability of such services.  The gag order clearly violates the First Amendment, according to law professor Eugene Volokh, the author of a leading treatise on First Amendment law, and a former law clerk to Supreme Court Justice Sandra Day O’Connor.  The gag order has also been criticized by the Wall Street Journal, the San Francisco Examiner, and Senate Minority Leader Mitch McConnell, yet the administration obstinately insists on enforcing it.

The Supreme Court has said the First Amendment protects the free speech rights of businesses like Humana even when they are government contractors, in cases like Board of County Commissioners v. Umbehr, 518 U.S. 668 (1996).

Liberal Obama supporters hypocritically claim Humana should shut up because it’s receiving federal funds (an argument they would never make regarding artists funded by the National Endowment for the Arts), and because its claims are supposedly false (never mind that its truthful claims are echoed by the non-partisan Congressional Budget Office, which is headed by Democrat Douglas Elmendorf).

But as Professor Volokh and the Washington Supreme Court have recently noted, “false statements of fact about the government are generally protected” by the First Amendment.

Humana’s statements are predictions about the future, and thus by definition not provably false.   Moreover, they are chillingly accurate predictions, which is why Obama ally Senator Max Baucus (D-Mont.), who is drafting Obama’s health-care plan, asked Obama to ban them:

“On Tuesday, the Congressional Budget Office director told Mr. Baucus’s committee that its plan to cut $123 billion from Medicare Advantage—the program that gives almost one-fourth of seniors private health-insurance options—will result in lower benefits and some 2.7 million people losing this coverage. Imagine that. Last week Mr. Baucus ordered Medicare regulators to investigate and likely punish Humana Inc. for trying to educate enrollees in its Advantage plans about precisely this fact.”

The fact that Humana is a government contractor doesn’t make this censorship any more acceptable, since the government simply has no business policing criticism of itself as “false”:  federal courts have ruled that even false speech by government contractors and employees on matters of public concern can be protected, as cases like Johnson v. Multnomah County, 48 F.3d 420 (9th Cir. 1995) show.

Nor is there any evidence that Humana is using federal money to disseminate its message.  And any subsidies Humana might be receiving would not justify the Obama administration’s blatant viewpoint discrimination against it, since Obama allies that receive lots of federal subsidies are being allowed to trumpet their support for Obamacare freely.  Under the Supreme Court’s ruling in Rosenberger v. Rector of the University of Virginia, viewpoint discrimination is a forbidden, “egregious” form of discrimination even when the government is subsidizing a speaker; here, the federal government is plainly engaging in viewpoint discrimination, since it is letting AARP make blatantly false claims in favor of Obamacare that contradict CBO finds and basic budget math, while blocking Humana from criticizing Obamacare based on reasonable arguments echoed by the Congressional Budget Office).

The Obama administration’s position contradicts the position of the Clinton administration, which admitted that Medicare contractors have free speech rights.  (But then, Obama is well to the left of Bill Clinton and past presidents).

Obama’s health care plan would raise taxes, break promises, harm people with insurance, explode the budget deficit, destroy many inexpensive health-care plans, and take away important freedoms.

Obama earlier showed contempt for the Constitution and the rule of law by radically expanding Bush’s  auto bailout, violating federal bankruptcy laws and the TARP statute in the process.  (The Obama administration ripped off taxpayers and retirees in the General Motors and Chrysler bailouts, in order to enrich the left-wing United Auto Workers union, in unnecessary bailouts that have cost at least $70 billion, drawing criticism even from the liberal Washington Post. Many commentators argued that the auto bailouts were illegal, such as the Heritage Foundation and Clinton administration Labor Secretary Robert Reich.)

He also demanded that a small country in Latin America (Honduras) violate its constitution by allowing the return to power of its left-wing ex-president and would-be dictator, imposing travel sanctions on its ordinary citizens as punishment for a ruling by its supreme court refusing to reinstate the ex-president, who was removed for violating his country’s constitution.  (The ex-president, Mel Zelaya, is a paranoid, erratic bully who claims he is being subjected to “mind-altering radiation and poison gas” and targeted by “Israeli mercenaries.”)

The Wall Street Journal criticizes Obama for seeking to force Honduras to accept the return of its ex-president and would-be dictator, Manuel Zelaya, a demand backed by left-wing Latin American dictators. “Mr. Zelaya was deposed and deported this summer after he agitated street protests to support a rewrite of the Honduran constitution so he could serve a second term. The constitution strictly prohibits a change in the term-limits provision. On multiple occasions he was warned to desist, and on June 28 the Supreme Court ordered his arrest. Every major Honduran institution supported the move, even members in Congress of his own political party, the Catholic Church and the country’s human rights ombudsman. To avoid violence the Honduran military escorted Mr. Zelaya out of the country. In other words, his removal from office was legal and constitutional, though his ejection from the country gave the false appearance of an old-fashioned Latin American coup. The U.S. has since come down solidly on the side of—Mr. Zelaya.”

The Weekly Standard criticizes Obama for blocking travel to the U.S. by Hondurans, even while inviting to the White House, and giving a visa to, an official of Burma’s genocidal government, which has used mass rape and massacres against ethnic minority groups, and used torture and murder against Buddhist monks protesting oppression. The Obama Administration earlier imposed travel sanctions on the people of Honduras to punish them for their Supreme Court’s ruling refusing to allow the return of Honduras’s ex-president dictator to office.  Michael Barone, the dean of American political commentators, chides Obama for undemocratically “opposing the elected Congress, courts and civil society of Honduras.”

The Washington Times calls it “the worst foreign policy ever.” It notes that Obama has bullied “Honduras, which is desperately trying to stave off a socialist takeover by an anti-American autocrat whom the State Department has concluded is worthy of full U.S. support. This has delighted Cuban dictators Raul and Fidel Castro and Venezuelan strongman Hugo Chavez, who are very willing to let the United States carry their water. Venezuela, meanwhile, has signed a major arms deal with Russia, continues to build the anti-Gringo “Bolivarian” bloc, bullies U.S. ally Colombia and plans to launch its own nuclear program.” (Obama’s actions have also emboldened Nicaragua’s corrupt, bullying President Daniel Ortega to behave dictatorially).

The Washington Times reports that “President Obama’s diversity czar at the Federal Communications Commission” has praised Venezuelan dictator Hugo Chavez and his crackdown on independent media, in remarks in which he “described Hugo Chavez’s rise to power in Venezuela as ‘an incredible revolution.’” (Chavez recently closed 240 radio stations in Venezuela, and his regime has shot unarmed demonstrators).  Other Obama appointees have Marxist roots or sympathies.   Obama’s green jobs czar was the race-baiter Van Jones, “a self-avowed communist” who remained in office for months, desite controversy, until revelations that he was a Truther who believed that George Bush may have been behind the 9/11 attacks. Obama’s nominee to be Assistant Secretary of State, Arturo Valenzuela, has a reputation as a loud defender of Venezuelan dictator Chavez’s terrible record on freedom of the press.

The Times also criticizes Obama’s congressional allies for moving to unionize airline security screeners and authorize collective bargaining at the TSA, making it more difficult for lazy or careless employees to be fired for incompetence.  The unions have “urged TSA Acting Administrator Gale D. Rossides to suspend use of the agency’s skills test for screeners. Failure rates this year reached more than 50 percent and were as high as 80 percent at some airports. The skills test shows that large numbers of airport screeners are failing at jobs that are intrinsic to keeping our airports and commercial airplanes secure, and the union’s response is to get rid of the test. The government employees union is also pushing to have failed screeners’ records cleared because pay and bonuses are tied to performance and unsatisfactory employee records prevent those who were fired for poor performance from being reinstated. So much for worker accountability.”

Obama also wants to introduce union-backed collective bargaining at the TSA. (A study found that the TSA is more than twice as likely to fail to detect a bomb as the private security firms it replaced. And TSA’s failure rate is three or four times as high as the few remaining private firms still allowed to handle airline security.)

The Obama administration is also undermining the security of railroad passengers by gutting an expert, highly-rated, anti-terror agency at Amtrak, which Amtrak’s unions hate, despite its efficiency, because it is not unionized.  Political cronyism is also playing a role in the gutting of Amtrak’s Office of Security Strategy and Special Operations (OSSSO).  Ultimately, OSSSO’s “highly-specialized officers” will likely be replaced by unionized employees with ”alarmingly low pass rates” in “basic” classes.

Earlier, the Obama administration ripped off taxpayers and retirees in the General Motors and Chrysler bailouts, in order to enrich the left-wing United Auto Workers union, in unnecessary bailouts that have cost at least $70 billion, drawing criticism even from the liberal Washington Post.  Many commentators argued that the auto bailouts were illegal, such as the Heritage Foundation and Clinton administration Labor Secretary Robert Reich.

In the Washington Post, George Will criticizes Obama for caving in to demands by left-wing unions for protectionist policies like tire tariffs that will harm consumers without saving jobs.   The stimulus package passed earlier this year contained protectionist provisions that backfired, destroying thousands of U.S. jobs by triggering massive retaliation against our export industry while doing little to reduce imports.

The Obama administration has now ordered a private provider of Medicare Advantage services to remain silent about how the Obama health-care plan would destroy the Medicare Advantage programs relied on by millions of seniors.  Eugene Volokh, a leading expert on First Amendment law, says that this violates the First Amendment.

Obama’s congressional allies have decided to conceal the exact language of their health-care bill until after it is voted on in committee, preventing the public from learning about controversial provisions buried in it.  (Earlier versions of ObamaCare have contained lots of provisions that do nothing to enhance health care, like racial preferences that were criticized as unconstitutional by the U.S. Commission on Civil Rights).

Obama’s Energy Secretary likens the American people to unruly “teenage kids” who don’t know what’s good for them, and need to be told what to do.  (The cap-and-trade bill he backs to fight global warming would be devastating for the economy and do nothing to protect the environment).

Obama’s health care plan would raise taxes, break promises, harm people with insurance, explode the budget deficit, destroy many inexpensive health-care plans, and take away important freedoms.

-Bush signed a $700 billion bank bailout bill. Obama continued the policy. And he extended it to other sectors, such as the automobile industry.

-Bush tried fiscal stimulus twice while in power. With some help from the Bush team, Obama oversaw the largest fiscal stimulus bill in history. There is occasional talk of another.

-Bush started two land wars in Asia. Obama could end them. Instead, he is committing more troops to Afghanistan.

-Bush oversaw Medicare part D, the largest expansion of government’s role in health care since 1965. Obama also would like to expand government’s health care presence.

-And now, we have the PATRIOT Act. The bill was perhaps the largest expansion of executive power in seventy years, and the Bush administration’s signature legislation. Now that Obama happens to be the executive with all these cool powers, turns out he likes the PATRIOT Act, too. So he wants to extend some of its expiring provisions.

Predictable. Still disappointing.

This has to stop, and the good folks at Junkscience.com are at the forefront of calling foul. They are releasing a series of “Wanted” posters for six corporate fat cats who want to grow fatter by means of the Waxman-Markey Bill. Junkscience describes the six and their crimes as:

* Exelon CEO John Roe, the “carbon bandit,” who stands to make billions of dollars at taxpayer expense from Waxman-Markey’s free carbon allowances;

* General Electric CEO Jeff Immelt, the “carbon schemer,” who would rather profit from lobbying for Waxman-Markey than innovating products that consumers actually want;

* Duke Energy CEO Jim Rogers, the “carbon betrayer,” who is lobbying for higher energy prices and against his own customers and shareholders;

* Dow Chemical CEO Andrew Liveris, the “carbon extortionist,” who threatens to send American jobs overseas unless Congress pays him off with free carbon allowances;

* Caterpillar CEO James Owens, who can only be considered as “carbon clueless” since he is lobbying against the coal industry, one of his biggest customers; and

* John Deer & Co. Chairman Robert Lane, the “carbon crapshooter,” who seems to be betting that he can wreck the economy and profit simultaneously.

Form that posse and go get ‘em, guys.

 “Obama challenges Wall Street to support his regulations,” reads the headline of a story from McClatchy Newspapers on Obama’s Monday speech at Federal Hall, opposite the New York Stock Exchange. In the address, Obama asked the audience of Wall Street traders ”to embrace serious financial reform, not fight it.”

But “embracing” Obama’s planned regulation may be easier for the Wall Street audience than meets the eye. This is beause a closer look at new rules Obama is proposing shows that the bulk of them do not go after the Wall Street culprits, but instead Main Street entrepreneurs that had nothing to do with the crisis.

The regulatory “white paper” issued by the Obama administration in June would shower mounds of red tape around job-creating venture capital firms, discount brokerages and the small investors who use them, and the limited banking operations of everyday businesses from discounter Target Stores to motorcycle maker Harley-Davidson.
 
Meanwhile, many of the flawed government policies at the root of the crisis from government-sponsored enterprises Fannie Mae and Freddie Mac to mark-to-market accounting mandates still have not been fully addressed. He should go after these reforms rather than putting in rules that would burden legitimate investors and entrepreneurs.
 
Among the mandates in Obama’s regulatory reform that would hit Main Street are.
 
1.    The forcing of businesses such as Target and Harley-Davidson to sell off their limited banking operations, or industrial loan corporations
 
For decades, nonbank businesses have been able to set up limited banking operations to issue credit cards and make loans to consumers. These operations, called industrial loan corporations (ILCs) are subject to most of the same as well as some more stringent rules for safety and soundness. Some of the most respected businesses, including Target Stores, Harley-Davidson and Toyota Motor, have set up these ILCs to help lower costs for consumers. Even House Financial Services Chairman Barney Frank recently told Bloomberg News that these weren’t a factor at all in the financial crisis — rather the big banking conglomerates were.

Yet Obama’s plan not only continues the unwise moratoriums on new ILCs it would force the existing one to be dissolved or sold off. As Coleman Drake and I write in the Washington Times, such a drastic action could have a dramatic effect in reducing access to credit and jobs in a still fragile economy.
 
2.    Putting an “investment adviser” fiduciary duty on discount brokerages that serve self-directed investors.
 
The Obama plan would put a “fiduciary liability” on many brokerage firms equivalent to the current standard on investment advisers. Many brokers would have to guarantee that investments are “suitable” for certain types of investors and be sued if they are not. But the hallmark of many discount brokers such as Fidelity and Charles Schwab Corp is that many of its customers don’t really want investment advice. They are self-directed investors make their own decision what to buy and sell, and then trade and click on their laptops.
 
Yet the fiduciary standard of care in Obama’s plan could apply even to advice incidental to trading – such as discount brokerage call centers. Charles R. Schwab, the founder of the firm that bears his names and has taken on old-line brokerages to provide discounted trading to individual investors, warned in a Wall Street Journal op-ed that the logical outcome of this mandate “would be that individual investors would be constrained to a small set of plain-vanilla investments – Treasuries for all – or would be forced to pay us a fee to manage their account.”
 
This rule would also miss the mark in terms of preventing fraud. It does not go after those who clearly offer investment advice. Bernie Madoff was a registered investment adviser, yet he passed SEC examinations with flying colors. This could also have the unintended effect of investors doing less due diligence on their investments, which could leave them at greater risk.
 
3.    Venture capital firms could be subject to mounds of regulation for the “systemic risk” they have not been shown to contribute to:
 
Under broad regulations proposed for hedge funds, other investment pools for sophisticated investors could be burdened with red tape. Among these are venture capital firms of the type that gave the crucial seed money to Apple, Google and other Silicon Valley startups that are now among today top tech firms. And these pose less risk than many other investment vehicles.

As James Freeman has written in the Wall Street Journal, “Even if one wishes to be paranoid about systemic risks, it’s hard to imagine how tiny tech companies could be ground zero in a future credit bubble. Fannie Mae and Freddie Mac don’t provide cheap financing to VCs.”
 
Conclusion: Wall Street deserves a lot of blame, but so do outdated big-government policies from Washington that were going strong despite the myth of the era of deregulation (I’ve outlined the main factors in this article that ran in Stocks, Futures & Options magazine.).

As CEI President Fred Smith has long urged, President Obama and Congress should sell off and break up the government-backed Fannie and Freddie, which new research shows were not only buying subprime mortgages directly but labeling other subprime mortgages as prime.

They should continue the progress in reforming mark-to-market accounting, which exacerbated the crisis by forcing financial firms to mark down even performing loans and lose capital to lend with. The small mark-to-market reforms put in place in April of this year have helped bring stability back to the banking sector, but the quasi-private Financial Accounting Standards is threatening to re-impose the flawed standard, something lawmakers need to stop.

Also, policymakers should pare back the costly Sarbanes-Oxley Act of 2002, the accounting mandates of which did virtually nothing to prevent the financial crisis and are now preventing smaller firms from going public to get the financing they need to build new businesses and new jobs.
 
Policymakers should observe the anniversary of the meltdown on Wall Street by pursuing pro-growth policies that will lead to a rebirth of entrepreneurship on all American streets.

Gallup finds organized labor taking a significant image hit in the past year. While 66% of Americans continue to believe unions are beneficial to their own members, a slight majority now say unions hurt the nation’s economy. More broadly, fewer than half of Americans — 48%, an all-time low — approve of labor unions, down from 59% a year ago.

These results are from the 2009 installment of Gallup’s annual Work and Education survey, conducted Aug. 6-9. The 48% of Americans now approving of unions represents the first sub-50% approval since Gallup first asked the question in the 1930s. The previous low was 55%, found in both 1979 and 1981.

Those numbers could go even lower, if much of the public learns more about the ways in which the Obama administration and Democrats in Congress are bending over backwards to please that loyal consituency, as F. Vincent Vernuccio and I argue in The American Spectator today. Particularly, the unions are getting considerable help from the administration and from their allies in Congress in trying to keep their grossly underfunded union pension funds from going bust, as Irwin Stelzer also notes in his Washington Examiner column today.

For more on union pension funds, see here and here.

But for a brief, shining moment, in the mid to late 1970s, Kennedy viewed smaller government as the most compassionate answer in one area of economic life: transportation. Kennedy was the prime mover in Congress behind the airline and trucking deregulation bills that were signed by President Jimmy Carter. He saw the impact of regulation in these industries as protecting entrenched companies from competition, and decided that the liberal, compassionate thing to do was to deregulate to give consumers lower prices and more choices. As the news stories search for all the ways Kennedy’s impact is felt by everyday Americans, one obvious impact is reflected in this headline today on AOL news, “Fall Airfares Starting at $59.”

From the 1930s to the 1970s, the federal government treated interstate airlines as a public utility, setting routes, schedules and fares through the Civil Aeronautics Board. The incumbent carriers had learned to like the system because they were protected from competition on their routes, and the price-setting operated as more of a price floor than a price ceiling. Low-cost carrier Southwest Airlines, which is offering the aforementioned $59 one-way fare and now dominates the airline industry, was confined to intrastate flights within Texas – where the federal government couldn’t reach – for the first eight years after its founding in 1971. (See this tribute to Kennedy today in Southwest Airlines’ blog.)

Some folks may have fond memories of the linen napkins and china plates on airlines in the “good old days” before deregulation when airlines aggressively competed on service because they couldn’t do so on price. But millions of middle-class families and small businesses were locked out of flying because of the high fares and limited service.

Think tanks, academics, and even consumer advocate Ralph Nader began to argue in the 1970s that airline deregulation was a good idea. In addition to problem of high consumer prices, deregulation was also advocated out of a kind of “systemic risk” concern. Railroads such as Penn Central were going bust and being bailed out, and observers feared that airlines would suffer the same fate and cause the same drain on taxpayers if they were not allowed to become competitive and self-sustaining.

But the aviation industry fought against repealing these controls that had long protected it from real competition (And, contrary to popular narrative, this instance of businesses championing regulation out of self-interested motives is not unique. Read Washington Examiner columnist and former CEI Warren T. Brookes Fellow Timothy P. Carney’s brilliant book, The Big Ripoff: How Big Business and Big Government Steal Your Money.). There were other businesses that supported deregulation, notably retailers like Sears that correctly saw that airline and trucking deregulation – which would lower their shipping rates – were part of a package. But the airlines fought hard and had a staunch ally in fighting deregulation in Sen. Howard Cannon (D-Nev.), chairman of the powerful Subcommittee on Aviation of the Senate Commerce Committee.

But deregulation advocates found an ally of their own in Kennedy, who, with the help of young policy aides like now-Supreme Court Justice Stephen Breyer, began to see the egalitarian case for deregulation. Beginning in 1975, Kennedy held hearings on airline and trucking deregulation as chairman of the Senate Judiciary Committee’s Subcommittee on Administrative Practice and Procedure and later the Subcommittee on Antitrust and Monopoly. Kennedy’s opening statement for one of these hearings sounds positively CEI-esque on the detriments of regulation and the benefits of the free market. The senator said, “Regulators all too often encourage or approve unreasonably high prices, inadequate service, and anti-competitive behavior.  The cost of this regulation is always passed on to the consumer.  And that cost is astronomical.”

Scholars Martha Derthick and Paul J. Quirk write in their book The Politics of Deregulation (published by the Brooking Institution – read excerpts here): “Kennedy’s lack of jurisdiction over regulatory legislation may have tended to limit the effect of his activities, but if so this limitation was amply offset by his ability to attract the press and exert pressure on the Senate subcommittees that did have jurisdiction.” The author write that “with Kennedy showing so much interest in pro-competitive regulatory reform, it became very hard for [Cannon] to show none.”

Cannon would hold his own hearings, and in the end, became a co-sponsor of Kennedy’s Airline Deregulation Act of 1978 that passed Congress and was signed by Carter. Kennedy would go on push the Motor Carrier Act of 1980 that deregulated trucking rates and was also signed by Carter. Kennedy would note these deregulatory accomplishments in his base-rousing “Dream Shall Never Die” speech to the Democratic National Convention in 1980, delivered just after he lost the nomination fight to Carter and considered the greatest speech of his career. “While others talked of free enterprise, it was the Democratic Party that acted and we ended excessive regulation in the airline and trucking industry, and we restored competition to the marketplace,” Kennedy intoned. “And I take some satisfaction that this deregulation legislation that I sponsored and passed in the Congress of the United States.”

Kennedy argued in the speech, “The demand of our people in 1980 is not for smaller government or bigger government but for better government.” Deregulation in the airline and trucking sectors, he implied, was an example of “better government.” Open Market bloggers would argue that smaller government is almost always better government, but Kennedy’s pragmatic case for this specific deregulation holds lesson for the regulatory debates of today. As much as deregulation is almost a dirty word and wrongly blamed for the financial crisis, practically no one would really want to go back to the bad old days when Southwest could only offer its low fares in the state of Texas.

CEI President Fred L. Smith Jr. and scholar Braden Cox point out in an entry of The Concise Encyclopedia of Economics that fares on flights have fallen 45 percent in inflation-adjusted terms since airlines were deregulated in 1978. They also cite research by scholars Robert Crandall and Jerry Ellig finding that even when figures are adjusted for changes in quality and amenities, deregulation still saves $19.4 billion per year in passenger costs, and these savings have been passed on to 80 percent of passengers.

The lessons of airline deregulation’s benefits to the common man in terms of lower prices and more choices apply even to issue on which Kennedy was on the other side. Health care consumers would benefit from competition among insurers across state lines, and a federal government bureaucracy that set rates and mandated what insurance companies could and could not cover – even if there were no “public option” – would likely be as bad for consumers as the old Civil Aeronautics Board that Kennedy fought to depower.

And as Smith and Cox pointed out, we should also fight to finish Kennedy’s job of air travel deregulation by allowing foreign carriers to compete on domestic routes and through privatization of airports and air traffic control, which other countries, including ironically Canada, have gone further than the U.S. in achieving. Completing this liberalization would help resolve lingering problems such as flight delays and passengers stuck on the tarmac for an inordinate amount of time, as the private sector could modernize aviation facilities just as the airline industry has adjusted.

In tribute to Senator Kennedy, Open Market urges all legislators to look at his accomplishments in airline and trucking deregulation, and be Kennedy-esque in applying his insights on these issues to the economy at large.

Disclosure: Like million of Americans, I happily fly Southwest Airlines, and I also own shares of its stock.

Can Capitalism Survive? is a condensation of Schumpeter’s 431-page masterwork of 1942, Capitalism, Socialism, and Democracy. The timing couldn’t be better. With economic crisis and recession dominating the news, people are as interested in the topic as ever. The trouble is, they don’t understand it very well. This book should help.

In this age of bailouts and cash-for-clunkers, Schumpeter’s theory of creative destruction is crucial for understanding why some policies will work and others will fail.

Putting Schumpeter’s ideas in a more accessible format does not dilute them, as some ivory tower types will no doubt allege. It increases their impact. Economic literacy is a good thing. The economic way of thinking badly needs to be popularized. May many more distillations of major economic works follow this one.