TOPICS IN POLITICAL ECONOMY

BRING BACK GLASS-STEAGALL? THE DISHONEST MS. WARREN

One of the flimsiest explanations for the great financial bust-up of 2008-2009 is the repeal of the Glass-Steagall Act in 1999.  Passed originally in 1933, the law aimed at prohibiting commercial banks from engaging in underwriting and trading corporate securities.

A new Glass-Steagall Act, argue those in favor, such as Massachusetts Senatorial candidate, Harvard law professor and ex-FDIC Chair Elizabeth Warren on her web site, “would prevent too-big-to-fail Wall Street banks from taking huge risks with people's life savings -- and then expecting taxpayer bailouts.” 

However, when pushed by New York Times writer Andrew Ross Sorkin, as to whether or not the financial crisis – or JP Morgan’s recent multibillion dollar securities loss – would have been avoided if Glass-Steagall  had been in place, she replied, “The answer is probably ‘no’ to both.”

Who Were the Bad Actors?  Why did Elizabeth Warren, whose profession is described by the Atlantic magazine as "a progressive consumer advocate," have to concede that Glass-Steagall had little or nothing to do with the bust-up of 2008-2009?  Because the law would have had no bearing on the activities of Bear Stearns, Lehman Brothers, AIG , Fanny Mae, and Freddy Mac, the primary “bad actors” of that period. None of them were commercial banks subject to Glass-Steagall.  Only Citibank can be cited as having lost its way, perhaps thanks to the law.

'Then why are you pushing for its repeal?' Sorkin asked Warren.  She replied that it is an easy issue to understand, and “you can build public attention” and make it a symbol of ‘what needs to happen to regulation.’

But I thought the  849 pages of legislation in the Dodd-Frank Act of 2011 gave us all we needed – and much more.  Now, apparently, we need more legislation to repeal a “symbol” that had little or nothing to do with the events of 2008-2009. Elizabeth Warren talks and acts more like a Chinese mandarin of the late Ming Dynasty, possessed of all knowledge needed to perfect society, rather than a fallible human being.

In short, Warren’s public repeal campaign is an intellectually dishonest way to attract attention in a hard-fought election campaign, somewhat akin to her ficticious citation of a Cherokee ancestor when climbing the academic ladder at Harvard.

We owe a few words of thanks to the New York Times and Andrew Ross Sorkin for making "progressive consumer advocate" Warren's dishonesty abundantly clear.

DOES THE AARP RULE THE COUNTRY?

The dictionary defines gerontocracy as “government based on rule by elders.”  After studying recent trends in household income, I conclude we have arrived at that point. Furthermore, our “elders” are essentially the lobbyists for the 37 million members of the American Association of Retired Persons (AARP).

Consider the charts below, based on the Census Bureau’s well-regarded Current Population Survey (CPS).  I have emphasized median incomes, so that an equal number of households have lower and higher incomes than the median household in that particular age group.

Steady Growth in Income. Old folk, defined as those living in households headed by someone 65 years of age or older, typically draw on savings, in addition to income, to support themselves. They have seen their incomes increase at a remarkably steady pace throughout the last 30 years.  Not even the nasty recession of 2008-2010 made much of an impact on them.

 

 

If we wanted to include Federal government outlays on Medicare in old folks' income (which the CPS does not), that would have added 65% or $524 billion in 2010 to their household income of roughly $800 billion. A more complete accounting would also include the numerous housing, nutrition, homecare, energy assistance and transportation subsidies for the elderly.

Going Nowhere.  Meanwhile, the youngest households are going nowhere on the income scales, even while many try to pay off their staggering level of college loan debt. Despite the rise in mean (average) incomes, the median real income of such households, which numbered 6.1 million in 2010, has stagnated over the past several decades.  In fact it was lower in 2010 than in 1990, a sharp contrast to the 15% gain for the old folk.  Although not shown here, between 2000 and 2010 median real incomes fell for all income groups - except for the 65+ age group, which enjoyed a 7.5% increase.

 

 

These generational divergences are an unhealthy and worrisome trend. In effect, the older generation is squeezing younger generations via the iron fist of government via Medicare, overly generous pensions for its employees, and a multitude of elderly-oriented programs.

In short, the AARP, which stoutly defends every big and little government subsidy which benefits its members is doing a great job for its constituents.  Maybe the Occupy Wall Street crowd should take its show to AARP headquarters at 601 E Street, NW in Washington, DC and ask the old folks to exercise a bit of restraint.

 

 

 

 

 

 

 

 

 

 

 

 

The dictionary defines gerontocracy as “government based on rule by elders.”  After studying U.S. trends in household income, I conclude that not only have we arrived at that point, but that our “elders” are essentially the 37 million members of the American Association for the Advance of Retire Persons (AARP).

Consider the charts below, based on the Census Bureau’s well-regarded Current Population Survey (CPS).  I have emphasized median incomes, so that an equal number of households have lower and higher incomes than the median household in that particular age group.

Steady Growth in Income. Old folk, defined as those living in households headed by someone 65 years of age or older, have seen their incomes increase at a remarkably steady pace throughout the last 30 years.  Not even the nasty recession of 2008-2010 made much of an impact on them. 

 

If we wanted to include in old folks’ income Federal government outlays on Medicare (which the CPS does not), that would have added  65% or $524 billion in 2010 to their household income of roughly $800 billion. A more complete accounting would add in special housing, nutrition, energy assistance and transportation subsidies for the elderly.

Going Nowhere.  Meanwhile, younger folk are going nowhere on the income scales, even while they try to pay off their staggering level of college loan debt. The median real income of such households, which numbered 6.1 million in 2010, has stagnated over the past 20 and 30 year periods.  In fact it was lower in 2010 than in 1990, a sharp contrast to the 15% gain for the old folk.  Among the 45-54 age group, median real incomes fell 14% between 2000 and 2010.

These generational divergences are an unhealthy and worrisome trend. In effect, the older generation is squeezing younger generations via the iron fist of government via Medicare, overly generous pensions for its employees, or free public transportation.

In short, the AARP, which stoutly defends every big and little government program which benefits its members is doing a great job for its constituents.  Maybe the Occupy Wall Street crowd should take its show to AARP headquarters at 601 E Street, NW in Washington, DC and ask the old folks to exercise a bit of restraint.

 

THE STUDENT LOAN BROUHAHA: GOOD NEWS AND BAD

The student loan "bubble" has been swelling for years, puffed up by college adminstrators, spendthrift politicians, and  misleading (self-interested?) academic analyses that promise sharply higher incomes later in life for all those with college degrees. 

This is why the current brouhaha ("a noisy and overexcited critical response, display of interest or trail of publicity") over a scheduled increase in loan interest rates from 3.4% to 6.8% is actually helpful in focusing attention on the implications of a well-meaning program gone askew.

If Congress and the President decide to keep the interest rate at 3.4%, that would reduce currently forecast Federal government revenues by roughly $6 billion between 2012-2017, according to the Congressional Budget Office. 

The Bad News. The down side to the brouhaha is that both Republicans and Democrats, with eyes on college-age voters, want to keep the rate at 3.4% (Mitt Romney has endorsed a one year extension). In other words, they want to continue to encourage young people - and their parents - to borrow for college degrees that, on average, are of questionable value. 

In a recent piece entitled "The Imperiled Promise of College," New York Times op-ed columnist Frank Bruni  observed that  "college is a luxury item with newly uncertain returns." He might have added that a measurable factor in making college a "luxury item" has been the availability of cheap student loans, a point which Arthur Hauptman, in the respected blog "Inside Higher Education," expands upon.

The Good News.   The bright side to the brouhaha is that Congress recognizes the lost revenues must be balanced by either tax increases or spending reductions if the budget deficit is not to be increased.  That is progress.

Democrats are solidly lined up behind a tax increase on either oil companies or "the wealthy."  Republicans would make up the lost revenue by defunding a new "preventive healthcare" program that wormed its way into the massive Obamacare legislation.

In other words, the student loan issue frames the question very clearly: do we pay for new legislation by higher taxes or cutting spending in some other program? Put another way, the fundamental issue is, do we wish to increase the role of government in the economy or to constrain it?

It would be commendable this fall if electioneering politicians, when discussing Federal taxes and spending, could go beyond clever sound bites and debate this fundamental issue.  And that they recognized that "good budgeting is the uniform distribution of dis-satisfaction." 

 

 

HIGHER EDUCATION, RICK SANTORUM AND PRESIDENT OBAMA

According to the well-credentialed Rick Santorum (BA, MBA, and LD), when it comes to higher education President Obama (just BA and JD) is a "snob." In what sense could the erst-while candidate be using that term to put down our current President? 

To understand where Santorum is coming from you need to read Obama's 2009 controversial "back-to-school" speech at a Virginia high school. He told the students "no matter what you want to do with your life, I guarantee you that you'll need an education to do it." Little to quarrel with there.

But what occupations did the President cite as goals for the assembled students?  The order in which he mentioned them was writer, doctor, teacher, police officer, nurse, architect, lawyer, and "member of the military."

The "Lowly Occupations." What's missing from that list? John Derbyshire tried to complete it in a recent issue of the Claremont Review of Books:

So much for the mechanics, gardeners, fishermen, glaziers, loggers, athletes, barbers, truckers, cooks, butchers, roofers, miners, crane operators, manicurists, linemen, dancers, cameramen, steel fixers, personal trainers, carpenters, brewers, florists, ranchers, masons, potters . . . to hell with them!  

Derbyshire equates Obama's vision with a Chinese Mandarin proverb: "Ten thousand occupations are lowly; only book-learning is exalted."  In other words, this is the prevailing wisdom "about useful, honest work in an imperial-bureaucratic despotism run by arrogant scholar-officials" - whether in China AD 1000 or the U.S. in 2012.

To be fair to the President, his public position is more nuanced than ex-Senator Santorum implies. As Obama put it in footnote-like aside when talking at the University of Michigan earlier this year,

When I say higher education, I don't just mean four-year colleges and universities; I also mean our community colleges and providing lifelong learning for workers who may need to retrain for jobs when the economy shifts.  

That is an important caveat. But I suspect it is probably a speech-writer's late-in-the-day insert.  The President himself has essentially zero experience in working with his hands or working up a sweat (other than playing basketball) on the production line or stacking hay. He is, essentially, a talented verbalist and orator with very little contact to the world where material things are made, distributed and sold.

As Derbyshire correctly implies, Obama cannot recognize that there are sensible alternatives for many high school graduates other than second-rate higher education mills and the ruinous student loan burden that typically goes with them.  Given his background, how could he understand what a fault-free production run, an on-time delivery, a well-laid brick wall or stack of hay bales mean to a productive and conscientious but college-degreeless worker?

Devaluing the High School Degree.Nor does the President and the higher education lobbying juggernaut concede that the ease with which high school graduates can gain admission to most colleges is devaluing the degrees they award - as well as high school degrees.  As Albert Shanker, late president of the American Federation of Teachers put it,

Whatever colleges pretend, their influence over high school standards and student achievement is decisive.  Kids are just like adults: they will work to get what they want.  If they know they have to work hard, listen in class, and come to school every day with their homework done in order to get into college they'll do that.  If they know they can get by with less and still get into college, that is what they will do. [Quoted in Jackson Toby, "The Lowering of Higher Education in America," 2010.]

In other words, in far too many cases high school graduates get a second-rate education because that's all they need to get into college.

"Snob" is not the right word to characterize President Obama and his position on higher education, however much attention it got Rick Santorum on the evening news and Youtube.  More accurate would have been "well-intentioned and naive." 

Getting it Right. If President Obama (or Rick Santorum) really wanted to effectively promote better educated youth they would be chastising college presidents and trustees for making it too easy to enter their hallowed halls.

RENTING: THE NEW HOUSING PARADIGM

Public policy played a major role in precipitating the housing bubble, its subsequent implosion and a painful recession. 

The Federal government's mindless promotion of home ownership, the mantra of owner-occupied McMansions as a sure-bet investment, and the tidal wave of government-supported mortgage financing turned a traditional cyclical downturn in the economy into a financial crisis.  There is even a government program designed to "help" active duty military, who typically are relocated every three years or less, to buy homes rather than rent.

A modest recovery in the housing market is now underway, but it has very little to do with any Federal government initiatives.  The Obama Administration has focused on suing banks for sloppy paperwork and forcing lenders to modify existing mortgages to reduce borrowers' monthly payments.  As summarized by a recent New York Times article, these programs have been "crippled by weak oversight, conflicts of interest, mind-numbing complexity and poor performance by many of the participating banks."

Return to Rentals.  As I suggested in a post six months ago, the dominant reality in housing today is a return to the rental market.  This is particularly true for younger households. Census Bureau data indicates that home ownership rates overall have dropped from 69.1% of households in 2005 to 66.0% in the fourth quarter of 2011. 

The trend in most marked among younger, more mobile households, where drops of over 5 percentage points have taken place. Between the fourth quarters of 2010 and 2011, there was no significant change in the number of owner-occupied housing units; however, there was an increase of 750,000 in the number of renters. This should be viewed as a healthy trend, unless you are a realtor or real estate lawyer.

The need to stay mobile - to be able to move out of town to a new job without the burden of selling a home - is undoubtedly a major factor here, now that everyone is aware that home prices can decline as well as rise.  The Case-Shiller national composite index of home prices continues to fall and is now down 34% from its 2006 peak. (The price index for rental housing has risen 2.5% over the past year.)

Private Sector Response.  The clearest measure of private sector response to the demand for additional rental housing units is in data on new construction.  Starts on multi-unit housing structures in 2011 were 60% ahead of year-earlier levels, compared to a 9% drop in single-family homes.

In addition, conversion of existing single-family homes to rental units appears to be attracting major investor interest.  Bloomberg Markets' most recent issue features a lengthy description of how private equity real estate funds, backed by major institutional investors such as California's state employee pension plan, are moving into this sector.  Such funds buy units in or facing foreclosure, refurbish them, and then rent them out. The Federal Housing Finance Agency, stuck with 180,000 repossessed homes (courtesy of FNMA and Freddy Mac), is now looking to offload them via similar arrangements.   

In short, financial markets and individual entrepreneurs are responding effectively to a significant shift in households' preferences for housing.  Meanwhile, Washington politicians and bureaucrats frantically try to "do something" to clean up the mess they helped create in the first place.

JOBS LOOKING FOR WORKERS, CONT.

Yet another current and substantive report on "Factories Struggling to Find Skilled Workers," this time from this past Sunday's Washington Post.

Reporter Peter Whoriskey, writing from Holland, Michigan, notes that while presidential candidates roam the state promising to bring jobs back, " the jobs are already here.. . what's missing are the skilled workers needed to fill them." Michigan manufacturers are looking for machinists, particularly those with the ability to handle numerically-controlled equipment. Welders, tool and die makers, and assembly team leaders with basic programming skills are hard to find.

By one recent survey done for the Manufacturing Institute, there are as many as 600,000 manufacturing jobs going unfilled. The article correctly points out that high schools persist in making entrance into four-year colleges the goal of graduates - despite the fact that skilled operators-programmers make from $18-$28 an hour while the upstairs "white collar" designers make $14-$24.

Maybe, thanks to governors in the 41 states that cut spending on higher education last year, the word is getting out that for many young people four-year college degrees are a waste of time and money - and that there are plenty of jobs out there that don't require a four-year degree.

If the governors' actions send the message to the school boards that set policies for the nation's high schools, that would be a major step towards reforming the higher education Goliath - and meeting the needs of American industry.

For additional facts and analysis, check out my posts in the "Education" category written over the past 18 months, including one earlier this month.

HOW TO MESS UP THE FINANCIAL SYSTEM: IMPLEMENT THE VOLCKER RULE

One of the many provisions of the Dodd-Frank financial reform legislation was a section intended to prohibit proprietary securities trading by commercial banks, e.g. that wasn't at the behest of clients. It was strongly advocated by former Federal Reserve Chairman Paul Volcker.

 "Don't gamble with depositors' money!" was the stern injunction.  But what is the difference between gambling and taking risks?  Card-players, most conspicuously blackjack players, can be extremely careful in calculating the odds at any given point and disciplined in how they play. Are they "managing risk" or are they "gambling"?

Similarly, when bankers make loans to individuals and companies they expect to incur losses.  But if they are disciplined in their lending, their good loans provide earnings that offset losses on the bad loans and still leave something for the shareholders.

FX 101.  Providing customers with the ability to buy and sell foreign exchange, government securities, or interest rate swaps is important function of large banks. But banks cannot undertake large transactions in these markets without incurring a variety of risks.

Let me, as a former foreign exchange system manager, give a relevant example. If General Motors contacts Citibank and asks the foreign exchange desk for a price on $300 million New Zealand dollars for delivery exactly six months from now, it does not tell the bank whether it wants to buy or sell $NZ. 

If Citibank wants to keep General Motors as a foreign exchange customer, it has to quote realistically on both the buy and sell side, since the traders at General Motors monitor second-by-second many of the same computer screens as the traders at Citibank.This forces the bank to quote a very narrow "spread" between its buying and selling prices.

But, assuming GM accepts a quote from Citibank, the bank will end up with a $300 million risk position if it does not already have another customer at the same time whose deal would fully offset the new transaction. (Indeed, it might end up with an even larger risk position if it had been already exposed from earlier deals.)  Saddled with increased risk, the trading desk must now decide how and how quickly to reduce its exposure (within five minutes? end of day? end of week?).

Collateral Damage.  The same trading realities rule the markets in other financial instruments.This is why a number of foreign governments have expressed alarm at the intended regulations: they are concerned that the U.S. banking institutions which have "made markets" (provided "liquidity") for buyers and sellers of their sovereign debt will reduce their market-making activity. That would result in wider "spreads" and increase the cost of issuing new sovereign debt.  This fear is substantiated by the fact that trading in U.S. government securities would be exempt from the Volcker rule.

Totally "naked" speculative trading, such as recently brought down MF Global Holdings, is easy to spot.  But trying to divine when, in the minds of the trader, the lines between customer-related market-making, hedging and outright speculation have been crossed is an impossible task - even with the 300 pages of regulation and explanation that attempts to implement the Volcker Rule.

The most comprehensive and substantive criticism of the proposed rule can be found in the January 18 Congressional testimony of Brookings fellow Douglas Elliott.  He makes a strong case for repealing the rule or, at the very least,

". . . for Congress to send a clear signal that regulators are to implement the rule in a modest fashion that focuses on stopping only those activities that very clearly violate the Volcker Rule without halting activities where the intent of the transactions is unclear."

Even Paul Volcker sounds contrite about the proposed regulation, telling Charlie Rose recently that "Oh, I think it's OK . . . the regulation itself is only 35 pages."

Hopefully regulators and Congress are paying attention to the warnings from every direction - and recalling the words of Reinhold Niebuhr:  "We mean well and do ill and justify our ill-doing by our well-meaning." But Chairman Volcker may be in for another lesson in the law of unintended consequences.

 

HIGHER EDUCATION: WELCOME TO THE BUBBLE MACHINE

President Obama travelled to the University of Michigan last week to talk up higher education - and threaten its administrators with de facto price controls.

At the same time that he proudly pointed to his Administration's steps to increase the demand for higher education - capping student loan repayment schedules, increasing loans and grants to students, reducing interest rates on loans, and extending the tuition tax credit - he promised to push Congress to steer federal campus-based aid to "colleges that keep tuition affordable, provide good value, and serve their students well."

Clearly, the President didn't take (or didn't pass) Economics 101 when he was in college.  The relentless increase in the cost of higher education has been underwritten in large part by the availability of the very programs that the President wants to expand. The scale and growth rates of these programs is staggering: the Department of Education estimates that between fiscal years 2009 and 2012, post-secondary student aid and tax benefits will have increased by $41 billion to $181 billion or nearly 30%.  

Look at Germany.  As a starting point, the Administration might look closely at Germany's educational system. In Germany, according to the OECD's "Education at a Glance," only 26% of adults have tertiary (e.g. college or higher) degrees, compared to the U.S. with 40%. 

Yet Germany's unemployment rate is running at 6.7% compared to our 8.3% at a time when many U.S. manufacturing industries are desperately seeking qualified workers. (See my "Jobs Looking for Workers" posts over the past six months.)

Clearly, the track record of the Federal government's intervention in higher education is abysmal.  As Charles Murray, the author of "Real Education," put it recently, without that intervention "the last three decades would have seen a much healthier evolution of post-secondary education that focused on concrete job credentials and courses of study not constricted by the traditional model of the four-year residential college."

Pumping Up the Bubbles.  Instead of radically restructuring and downsizing Federal higher education subsidies, which increase the demand for education and the ability of administrators to increase tuition costs, the President wants to use them to force de facto price controls on every institution of higher learning. This is like pumping more hot air into the higher education bubble while simultaneously making it easier for everyone to join the party.

If this looks like the basic politically-driven policy formula which gave us the subprime mortgage crisis - and which is driving the inexorable increase in health care costs -you're right.

OUTLOOK FOR 2012

Believers in the business cycle should opt for modest optimism for the U.S. economy in 2012.

As I pointed a year ago, the average expansion phase of a business cycle since 1945 is 59 months. We are now just halfway - 30 months - along that path, and nearly all the key indicators remain favorable, although not buoyant.

The economy in 2011 grew at about 2%, less than my cheery forecast of 3.5%, but enough to silence the "double dip" recession fears of some. Signs of encouragement include:

• In the past 12 months, the number of unemployed has dropped by 1.3 million. Employment has being rising steadily, although is still down substantially from the cyclical peak.
• Industrial production is up 3.7% through November.  
• U.S.-assembled auto sales in December were 11% ahead of a year ago.

The private sector's weak spots continue to be employment in financial services (particularly investment banking and related activities) and residential construction,  whose sweetheart bubble burst in 2008.  Contrast the flat employment picture in these sectors with the overall economy, as charted below using BLS data.

TOTAL EMPLOYMENT, 2001-2011

 

EMPLOYMENT - CONSTRUCTION OF BUILDINGS, 2001-2011

 EMPLOYMENT - SECURITIES, COMMODITIES, INVESTMENTS

 2001-2011

As a long-time believer in the powerful dynamics of the business cycle, I would normally be comfortable in suggesting economic growth in the U.S. next year should be on the order of 3.5% or better.  This would be achieveable even with continuing sluggishness in single-family home building and important financial subsectors.

Consumer spending is clearly strengthening and capital spending budgets appear to be buoyant.  The latter is due partly to the spreading impact of gas and oil shale drilling, development, and pipeline activity on both suppliers and customers (e.g. utilities and chemical manufacturers in several regions of the country.

However, the outcomes of the European Euro-debt crisis and political gridlock in the U.S. over taking steps to avoid precipitating a similar situation on this side of the Atlantic are truly exceptionally bothersome uncertainties. 

The pessimist will side with Kenneth Rogoff, the leading historian of such events, who has written  recently about "the likely coming wave of sovereign defaults."  The optimist will concede that Greek bondholders will shortly take a bath, but that the resulting waves will be insufficient to overturn the boat.

Bottom line?  A growth rate of 3.5% for the U.S. in 2012 is my "most likely" possibility, but the downside odds are larger than usual. 

 

 

 

REGULATION, THE EPA, AND THE MING DYNASTY

After considering 16,000 years of humanity, Stanford University historian Ian Morris  concludes in Why the West Rules - For Now that the most advanced and influential society is that which is best at "getting things done." 

To quantify Eastern and Western societies' ability to get things done over 16,000 years, Morris (originally trained as an archaeologist) has designed an "index of social development."  It is based on four metrics: per capita consumption of energy, organizational capacity, the ability to process/communicate information, and the ability to wage war.

This thoughtful way of looking at history raises the issue of government regulation and "the ability to get things done."  I was reminded of this when puzzling over why China, inventor of the compass, paper, printing, gunpowder, and an early exploiter of coal and producer of iron, failed to realize its technological potential.  Instead, it discouraged innovation and eventually succumbed to European domination.

Much of the reason for China's failure can probably be found in the work of famed sinologist, Etienne Balazs commenting on the Ming and later dynasties.  As quoted by David Landes in his The Wealth and Poverty of Nations:

Chinese society was highly totalitarian . . . no private initiative, no expression of public life escapes official control . . . there is a monopoly of education, jealously guarded . . .  there are clothing regulations, a regulation of public and private construction . . . the providential State watches minutely over every step of its subjects, from cradle to grave.  It is a regime of endless paperwork and harassment.

The ingenuity and inventiveness of the Chinese . . . would no doubt have enriched China further and probably brought it to the threshold of modern industry, had it not been for this stiffling state control.  It is the State that kills technological progress in China.

Now, consider the trend of regulation emanating out of Washington, DC over the past decade or so, as depicted by a recent graphic in The Wall Street Journal.

 

 

This chart clearly shows that the pipeline of upcoming Federal regulations, each of which will impose a cost on the economy of $100 million or more, has soared over the past five years.  At the same time, Washington University's Center for the Study of American Business estimates that the cost of administering existing regulations will be $57 billion in 2012 while employing over 290,000 people.  Finally, there are the costs of investment-dampening uncertainty when firms are unsure what regulations are likely to be imposed.

Smog and Highway Signs.  Consider the Clean Air Act administered by the Environmental Protection Agency.  The Supreme Court has upheld EPA's contention that it should not consider costs when imposing new regulations. The Agency is presently finalizing rules that will probably shut down a substantial number of coal-fired generating plants in the midwest and southern states before the end of their useful lives.  The estimated all-in industry costs could exceed $80 billion (passed on to customers, of course) according to one research study.

However, when the Obama Administration's proposal to reduce ground-level ozone and the resulting smog was found to cost up to $90 billion annually, the President finally backed off, citing "the importance of reducing regulatory burdens and regulatory uncertainty."  Well, at least $90 billion catches the President's eye.

One other very small victory for regulation skeptics: in August, the Department of Transportation eliminated 46 deadlines for local communities around the country to replace existing highway signs with DOT-mandated standardized replacements. (It kept in place an additional twelve).  

DOT's reasoning?  "Local and state transportation agencies are best-equipped to determine when they need to replace signs and other items in the course of their daily work.” But apparently they can't be trusted to design the eventual replacements.

There clearly is a place for sensible, cost-effective regulation in sectors such as processed food and pharmeceuticals, although frequently law suits for damages may be more effective than regulation in heading off egregious behavior. (Note that British Petroleum has paid out to date $7.5 billion in claims arising from its 2010 Deepwater Horizon accident and oil spill in the Gulf of Mexico.)

Reduce the Burden.  While the regulatory burden may not currently approach that of the late Ming Dynasty, it is time to act.  The White House and Congress should be spending as much time and political capital on "reducing the regulatory burden and regulatory uncertainty"  - as the President puts it - as on spending and taxes.