Sunday, June 24th, 2012
My letter appeared in the Wall Street Journal in response to an Op Ed, “Rules for America’s Road to Recovery,” by John Taylor, Professor of Economics at Stanford University. Professor Taylor has written extensively on the financial crisis that began to 2007 and argues that the low interest rate policies of the Federal Reserve as well as the excessive residential lending by Fannie Mae and Freddie Mac were the main causes of the housing bust and ensuing global recession. He has been against the most recent quatitative easing policies of the Federal Reserve (The Dangers of an Interventionist Fed, Wall Street Journal 05/29/12), and argues that a stable tax policy rather than temporary tax cuts and stimulative measures is the best way to achieve economic growth. In “Rules for America’s Road to Recovery,” Professor Taylor argues that a potential recovery is languishing due to regulatory uncertainty caused by ObamaCare and the Dodd-Frank financial reforms and that what is needed are more predictable, rules based monetary and fiscal policies. His arguement draws on the work of Austrian eonomist Friedrich Hyaek, who argued that central banks such as the Federal Reserve must take actions in an understandable and predictable manner and that deviation from such as strategy “creates uncertainty and hinders prospertity.”
WALL STREET JOURNAL LETTERS TO THE EDITOR 06/12/12
The Bumps on America’s Road to Economic Recovery
John B. Taylor says in “Rules for America’s Road to Recovery” (op-ed, June 1) that Hayek traces the “rule of law” back to Aristotle and Cicero, but Aristotle was a devoted student of Plato who preferred a “rule of the wise.” The difference between the two philosophies is telling, in that Western civilization evolved from the former and Eastern despotism the latter. The rule of law that Mr. Taylor describes is essentially one of secure property rights, which weren’t the product of philosophers, but custom, such as the British common law or the Twelve Tables of early Roman law.
Let’s not forget that the people who promoted the various bailouts were on both sides of the aisle. No one thought any other course of action was warranted. Has anyone forgotten Treasury Secretary Hank Paulson, a Republican, getting down on his knees to beg House Speaker Nancy Pelosi, a Democrat, for stimulus money? One might also recall Federal Reserve Chairman Ben Bernanke’s comments, since he was hardly a Democrat, when questioned why he would endorse action he previously questioned. He said, “Well, as you know, there are no atheists in a foxhole.” Mr. Bernanke’s metaphor is more apt than Mr. Taylor’s simile.
Prof. Taylor cites “regulatory uncertainty” as one of the causes of “persistent high unemployment and our feeble recovery from the recession.” He argues that prospective employers facing a complicated tax code and a lack of a “rules based system” have pulled in their horns. Yet we are also suffering from ill-advised and detrimental regulations that aren’t at all uncertain. This is especially true in California.
Steve Malanga (“How California Drives Away Jobs and Business,” Cross Country, Oct. 15, 2011) quotes Andrew Puzder, CEO of California-based CKE Restaurants, which operates 3,000 eateries nationwide. Mr. Puzder called his company’s home state “the most business-unfriendly state we operate in.”
As Mr. Malanga notes, “CKE, which runs Hardee’s and Carl’s Jr., has stopped opening restaurants in California, where the regulatory process can take up to two years. But it plans to open 300 in Texas, where the start-up time can be six weeks and opening costs $200,000 less than in California.”
At the Federal level we have Sarbanes-Oxley. Unfortunately complying with the statute has impeded capital formation to such an extent that there is a bipartisan effort under way to repeal parts of it so that new companies, other than the Facebooks of the world, can raise capital and contribute to job formation.
Marc A. Roth
President, JMR Capital Management