The Price of Dodd-Frank Isn’t Cheap

Published November 25, 2014

National Review Online

During the 2012 campaign, President Obama resorted often to his favorite substitute for thinking — ridicule. Before enthusiastic audiences (who were assured that his reelection would spell a thriving economy and a revived middle class) the president would mock Republicans by suggesting that “they have the same prescription they’ve had for the past 30 years . . . Take two tax cuts, roll back some regulations, and call us in the morning.”

Mr. Obama’s prescription, which we are now in a position to evaluate for effectiveness, was the most massive increase in regulation of modern times. There is no industry or economic sector that the Democratic party does not believe will benefit from badgering interference from Washington. Adding insult, every new regulation is trussed up and presented as “being on the side of the middle class.”

Sometimes, as in the case of Obamacare, that required lying to voters about what the law contained. In the case of Dodd-Frank, it required insulating regulators from democratic accountability. The Consumer Financial Protection Bureau, a creature of Dodd-Frank, is not even funded by our elected representatives but instead gets financed directly from the Federal Reserve. Translation: If the “middle class” ever decides that Congress should relieve it of the CFPB’s ministrations, they will be unable to exert any influence. Like HAL in the movie 2001, the CFPB has a life of its own.It’s odd that Democrats are so rarely challenged on their claim to speak for the broad middle class, because the story of Democratic policy over the course of the past century has been to withdraw more and more power from ordinary people and place it in the hands of the unelected. They’ve succeeded very well with the judiciary, and with federal agencies. Dodd-Frank, however, marks a new milestone. Not only does it empower new regulators to police an already heavily regulated industry, it insulates the bureaucrats from congressional oversight. A number of states have sued, calling the law unconstitutional.

As for how the middle class is faring, the Wall Street Journal provides some useful statistics. The bottom 60 percent of American income earners was worse off in 2011 than it had been in 2007. Two years after the official end of the recession, middle-class Americans got more government checks than they had in the previous decade (transfer payments were up 25.9 percent over 2007), but after-tax income fell by 1.9 percent.

There are other ways to examine the record: Poverty has hit a 50-year high. The wealthiest 10 percent saw incomes rise during the Obama years, while everyone else’s incomes declined or remained stagnant. With interest rates effectively at zero, capital searched for higher returns and found them in the stock market. Income inequality, that great bugbear of the Democratic Left, has increased, not decreased, under Obama’s policies.

Dodd-Frank is the poor stepchild of Obama-era enactments, receiving far less attention than Obamacare, but its contribution to the stagnant economy deserves more recognition. The Federal Reserve Act of 1913 was 31 pages long. Dodd-Frank weighs in at 2,300 pages, not counting 13,789 pages of regulations as of 2013. Here is how a defender of the law described it: “Sure, Dodd-Frank is a mess; sure, the statute is unwieldy and inefficient; sure, the statute takes power away from citizens and states and transfers it to the federal government. However, it’s not unconstitutional or otherwise illegal for Congress to pass a bad law. And this is what Dodd-Frank is.” Remind me never to ask Jonathan Macey, of Yale Law School, for a testimonial.

While big Wall Street houses can tolerate the added burdens of Dodd-Frank without breaking a sweat, smaller banks, like the ones that routinely issue personal and business loans, are being squeezed. A study by the Mercatus Center found that 83 percent of small banks reported that their compliance costs had increased by more than 5 percent. Most planned to hire more compliance staff and to cut back on mortgages, home-equity lines of credit, and other services in order to cover those costs. Employment at small- and medium-sized banks has been slow or negative, while large banks have seen robust growth.

President Obama mocked concerns about regulation, but his embrace of it has successfully put sticks into the spokes of the economical wheel. The price, Democratic talking points notwithstanding, is being paid by the poor and the middle class.

— Mona Charen is a senior fellow at the Ethics and Public Policy Center. © 2014 Creators Syndicate, Inc.


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