Tomorrow night the President will break a window. No, not literally. But the broken window metaphor illustrates his administration’s ongoing approach to “fixing” the economy. In his speech, President Obama will suggest the dollars spent on replacing the window will benefit all. Trust me, from “free” community college to “affordable” housing to lauding auto-industry bailouts, there will be a lot of “fixing.” It’s all based on a fallacy, of course.
In 1848 the French economist Frederic Bastiat developed the parable of the broken window to debunk the widely held belief that destruction (i.e. wars) can yield benefits because of the resulting public investments and “stimulus” of industry. Rather, he pointed out, broken-window policies ultimately hurt society by directing resources away from their most productive uses. (Remember “cash for clunkers”?) “The window having been broken, the glass industry gets six francs’ worth of encouragement; that is what is seen,” noted Bastiat. But, he went on, “If the window had not been broken, the shoe industry (or some other) would have received six francs’ worth of encouragement; that is what is not seen.” It’s a lesson in opportunity costs and the “unseen” unintended consequences of government intervention into the nation’s economic activity.
But as important as the “unseen” will be the “unsaid.” And the President, I expect, will leave much unsaid tomorrow about the actual problem facing America’s economy: overregulation. Granted, he didn’t create this mess—George W. Bush and many of his other predecessors deserve plenty of blame as well—but he has greatly contributed to it. Given his record, we can expect the President’s solutions to ignore Bastiat’s warning, and we will all pay for it.
So, to shine a light on the “unsaid,” here are some proposals the President and Congress should adopt as part of a State of the Union agenda if they’re serious about getting America’s economy moving again.
• Wind down Fannie Mae and Freddie Mac while honoring the property rights of theirshareholders. This would help prevent a repeat of the last financial crisis, in which they Fannie and Freddie played a starring role.
• Pass and sign into law the Regulations from the Executive In Need of Scrutiny (REINS) Act, which would require Congress to vote on new rules with estimated annual costs of $100 million or more. This will bring some measure of accountability and Congressional control to the more costly of agency rules.
• Require agencies to better quantify their regulatory costs by passing and signing into law the National Regulatory Budget Act.
• Freeze the Renewable Fuel Standard at 15.1 billion gallons and let the wind production tax credit expire. These programs make energy more expensive for everyone and provide no tangible environmental benefit.
• Amend the Endangered Species Act to compensate landowners when the government takes away their property or significantly erodes its value—sometimes rendering it worthless.
• Repeal the Dodd-Frank Act’s Durbin Amendment, which imposed price controls on debit card “swipe fees.” This amendment caused a shift in bank fees that means many Americans lose access to financial services, thus entering the ranks of the unbanked.
• Allow states to toll their own Interstate Highway System segments. Traffic congestion costs the economy more than $100 billion a year in drivers’ wasted time and fuel. Allowing state tolling would stave off tax increases, ease congestion, and encourage experimentation that could yield better funding and management practices.
There are many other actions the President and Congress can take to clear the regulatory cobwebs now entangling America’s shop floor. Yes, we’ve been sputtering along for six years now, as Washington has remained mired in one long round of point-scoring and finger-pointing. So why now? What’s changed? An election, that’s what.
With both houses of Congress now in Republican hands, the President will no longer enjoy the buffer of a Democrat-controlled Senate to keep legislation from reaching his desk. He’ll no longer be able to avoid the unpleasant business of vetoing bills and standing by his decisions.
As for the Republicans, having earned a majority, they now need to prove they deserve to keep it. That means moving forward with a positive and realistic pro-growth agenda.
Either way, in the never-ending political drama in our nation’s capital, both sides are now living in glass houses. So, please, no more broken windows.