Jamie Dimon, the chief executive of JP Morgan Chase, says regulatory policy is working against economic recovery and as such is contradictory. His complaint is about the new bank rules, but in fact government actions in myriad areas are at odds with each other.
Consistency does not appear to be an object in policymaking. For many years subsidies for tobacco growers co-existed with anti-smoking measures. A couple of months ago NYU law professor Richard Epstein wrote about regulatory and legal over-reach in the anti-smoking fight. One of his conclusions: “There are other steps the government could take. The United States should promptly cut to zero the near $200 million in tobacco subsidies that it shelled out in 2010.”
The US is not alone in this. The EU also subsidized tobacco farmers. Eventually the European Parliament cut most of the tobacco subsidy, but recently there was a report about subsidies to cigarette factories. Meanwhile the EU runs anti-smoking ads.
Regarding financial regulation, Mr. Dimon says higher bank capital requirements may be reasonable in the future but are not reasonable now, in the midst of the European debt crisis. New capital rules discourage short-term lending to other banks and purchases of risky bank assets, getting in the way of stabilizing the financial system. This is not good for creating jobs and is making recovery slower and more painful, he argued.
A simple explanation for seemingly incompatible policies is that different government entities have different goals and do not coordinate their efforts. Thus Mr. Dimon suggested that policymakers should talk to each other.
Bureaucracies typically resist working with other bureaucracies for fear that their own power and budget might decline as a result. If high-ranking politicians wanted to, they could insist on coordinated policymaking. But they don’t, because coordinating does not matter to them. The ultimate goal for a politician running for office is to get elected. From that vantage point, politicians tend to consistently push for policies that will bring them votes, funds or both. Anti-smoking gestures and agricultural subsidies are consistent with politicians’ self interest.
As for creating jobs, this is a means to getting elected but not the only means and not the most effective one, because it is uncertain. Government actions supposed to create jobs in reality often don’t. Raising money is probably more important because it allows for greater propaganda in which you can claim to be creating jobs, a more straightforward way to influence public opinion than attempting the real thing. Regulations that threaten the interests of large potential donors like banks are good for getting funds – the threatened businesses pay protection money – while also getting votes via the populist theme of attacking fat cat banks.
If policies were few and transparent, job creation, a goal desired by most of the population, would be more likely to be pursued consistently. Or at least, there would be fewer actions that go against it. That’s another argument for limited government. As things now stand, there are interventions for each objective and also for its opposite, all benefitting the political class.
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