As the presidential primaries dominate the news, under the radar the Obama administration continues its unilateral assault on the economy and civil society. Consider the news from just this week.
1. We start with HUD, courtesy of the Wall Street Journal: “The U.S. Department of Housing and Urban Development on Monday released guidance that could give ammunition to tenant advocates, saying the practice of excluding tenants based on their criminal or arrest records could violate the Fair Housing Act where it has a disproportionate impact on blacks and Hispanics.” The argument is basically that use of criminal history in this way is discriminatory because African Americans and Latinos are disproportionately represented in the prison population.
2. Of course, one way to avoid discrimination in renting is to buy your own home. From the Washington Post, we learn that the FHA is spearheading an effort to increase mortgage lending to low-income borrowers:
The Obama administration is engaged in a broad push to make more home loans available to people with weaker credit, an effort that officials say will help power the economic recovery but that skeptics say could open the door to the risky lending that caused the housing crash in the first place.
President Obama’s economic advisers and outside experts say the nation’s much-celebrated housing rebound is leaving too many people behind, including young people looking to buy their first homes and individuals with credit records weakened by the recession.
In response, administration officials say they are working to get banks to lend to a wider range of borrowers by taking advantage of taxpayer-backed programs — including those offered by the Federal Housing Administration — that insure home loans against default.
Housing officials are urging the Justice Department to provide assurances to banks, which have become increasingly cautious, that they will not face legal or financial recriminations if they make loans to riskier borrowers who meet government standards but later default.
Officials are also encouraging lenders to use more subjective judgment in determining whether to offer a loan and are seeking to make it easier for people who owe more than their properties are worth to refinance at today’s low interest rates, among other steps.
Banks are damned if they do and damned if they don’t. If they lend imprudently, they are open to legal and regulatory action. However, if they avoid lending to risky borrowers, they are also open to legal and regulatory action. Yet the Obama administration has confidence that it can direct those in the business where to find the golden mean.
3. On Wednesday, the Department of Labor released its long-anticipated new “fiduciary rule” for retirement plans. Although the new rule was less severe than the industry feared, it is nonetheless far-reaching and changes the landscape for 401(k)s and IRAs. At its core is a new requirement that people offering retirement advice must act as fiduciaries — i.e., for the exclusive benefit of their clients — instead of merely being honest and ensuring that products are suitable. This change may sound good on the surface, but will have unintended and counterproductive side effects. The rule will not only require changes to compensation practices, it will require considerably more time on the part of anyone who offers investment advice, and will substantially increase their liability. This makes it not worth the cost or the risk for advisors to serve middle-income clients. A rule put forward ostensibly to help the less-sophisticated will make it harder for those savers to get reasonably-priced products and advice.
Tellingly, the DOL is proposing waivers so that state governments do not have to adhere to the new standard.
4. The Obama administration has won its war on Pfizer.
Top U.S. drugmaker Pfizer and Irish rival Allergan are charting independent futures after scrapping a record $160 billion deal torpedoed by new Treasury Department rules meant to block American companies from moving their corporate addresses overseas — on paper — to avoid U.S. taxes.
The rules issued Monday, aimed at stopping the companies’ “tax inversion” deal, wiped out its financial incentives and rationale for Pfizer Inc., though they had no impact on Allergan PLC.
That led Pfizer and Allergan to walk away “by mutual agreement” on Wednesday. Pfizer, which is based in New York, will pay Allergan $150 million as reimbursement for its deal-related expenses.
Lest you think a large corporation deserves whatever it gets when it tries to reduce its tax bill, consider how the regulations were developed. The new rules were suspiciously narrowly written to apply to Pfizer. Moreover, as the Wall Street Journal notes, “[Treasury Secretary Jack] Lew has decided to reinterpret a 1969 law to propose a new rule in 2016 that changes longstanding conceptions of the difference between debt and equity in order to raise corporate tax bills,” making it “ugly for everybody, not merely ‘serial inverters.'” Lew has made legal activities retroactively illegal. And because of longstanding legal doctrine, Pfizer’s only recourse would be to merge, get slapped with IRS penalties, and then sue to recover them.
The examples above are from only the past week. A Google search for “new regulation” turns up countless more, large and small, state and federal. In contrast, a search on “new invention” or “innovation” turns up much less consequential results — or news from freer foreign shores. And that’s aside from the many articles describing how innovation is being hindered by… that’s right, regulation.
The relationship between regulatory caprice and our slow-growth economy is the subject of a must-read editorial in today’s Wall Street Journal. They write:
Pfizer CEO Ian Read defends the company’s planned merger in an op-ed nearby, and his larger point about capricious political power helps explain the economic malaise of the last seven years. “If the rules can be changed arbitrarily and applied retroactively, how can any U.S. company engage in the long-term investment planning necessary to compete,” Mr. Read writes. “The new ‘rules’ show that there are no set rules. Political dogma is the only rule.”
He’s right, as every CEO we know will admit privately. This politicization has spread across most of the economy during the Obama years, as regulators rewrite longstanding interpretations of longstanding laws in order to achieve the policy goals they can’t or won’t negotiate with Congress. Telecoms, consumer finance, for-profit education, carbon energy, auto lending, auto-fuel economy, truck emissions, home mortgages, health care and so much more.
Capital investment in this recovery has been disappointingly low, and one major reason is political intrusion into every corner of business decision-making. To adapt Mr. Read, the only rule is that the rules are whatever the Obama Administration wants them to be. The results have been slow growth, small wage gains, and a growing sense that there is no legal restraint on the political class.
Which brings us back to the elections. The Democratic candidates (and some Republican ones) share the underlying mindset of the Obama administration: the barrier to success is always other people — landlords, banks, insurers, big corporations. So while neither Sanders nor Clinton has any private-sector experience to speak of in their 145 combined years, both insist that they can fix whatever ails America by further regulating us.
But shared prosperity does not come from regulations. For that matter, it does not come from government at all. Prosperity comes from freedom — the freedom to trade and transact voluntarily for mutual benefit; the freedom to innovate; the freedom to pursue happiness. The “inversion” we should worry about is not a company moving offshore; rather, we should worry about how a government instituted to secure our rights has become destructive of these ends.