Jack Lew’s Political Economy
. . . unfortunately it is a mid-1930s Great Depression sweet spot!
"CEOs have learned to keep mum in the Obama era, lest their companies be punished like J.P. Morgan after Jamie Dimon criticized some parts of Dodd-Frank. So it’s worth noting the candid reaction after a new Treasury rule scuttled the merger between Pfizer Inc. and Allergan PLC.
The companies ended their $150 billion tie-up after Treasury Secretary Jack Lew issued new rules that made it harder for companies like Pfizer to move to Ireland to legally lower their taxes. Pfizer will have to pay Allergan a breakup fee of $150 million, though Allergan shares are still down more than $10 billion since the Treasury ambush.
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."
This ham handed economic tinkering is what transformed a recession in 1929 to a depression, under Hoover, and then to The Great Depression under Roosevelt.
Hoover the tinkerer engineer sought to keep consumer spending up by demanding employers not layoff workers in the recession claiming that would limit the length and depth of the recession, he also signed Smoot/Hawley. The results were disastrous with some employers going bankrupt after burning through cash to keep workers "employed." Smoot/Hawley triggered a deeply damaging protectionist trade war. Hoovers progressive tinkering moved the nation smartly from recession to depression.
Roosevelt was even worse, after running a campaign against Hoovers progressive ways, Roosevelt once elected doubled down on the progressivism creating agencies like the NRA which attempted to consolidate most economic powers in the administration, outlawing price discounting,among other things. Roosevelt also regulated what farmers could grow, and the gold standard. He and the Fed continually tinkered with the money supply.
The results of the Hoover and Roosevelt tinkering was a depression which they, with the active help of the Federal Reserve Bank, kept active and metastasizing from 1929 through the war years (the command and control economy of the WWII surpressed the depression but it was not until Congress legislated away much, but not all, of the depression era legislation, that the depression actually ended, in 1946. Yes, that is a heretical view.).
President Obama's administration is implementing policies which are similar to the disastrous policies of the Great Depression. Policies like Obamacare, Cash for Klunkers, Dodd/Frank, and the recent rules issued by Jack Lew all go along way to establish the Administration has a serious lack of faith in the free market system, and is willing to regulate, even after the fact, in an attempt to operate the economy like a remote controlled toy. The result is businesses unwilling to make decisions, unwilling to develop products, or research. The execution of a deal may be capriciously denied costing the parties hundreds of millions of dollars. So the economy slows, and if enough of this tinkering is done, it will stop, and even decline. This is the as yet unlearned lesson of the Great Depression.
"This week’s Treasury action interprets the tax laws in ways never done before. This ad hoc and arbitrary attempt to single out and damage the growth opportunities of companies operating within the current law is unprecedented, unproductive and harmful to the U.S. economy."
Treasury Is Wrong About Our Merger and Growth
Read is correct, this is harmful to the economy, and it explains much about what has been happening in the economy since President Obama took office. We used to call this tyranny, but seem more inclined to accept it today, regardless it is incredibly destructive.
This problem has been reinforced by the Fed's willingness to also tinker with the money supply with Quantitive Easing, balance sheet padding, among other gambits. Yet none have worked, we are mired in a pathetically weak, economy whose engine is barely able to turn over.
Obama and the Fed have not created a New Great Depression, yet. That may only be because they are simply too incompetent for the task. But the risk remains that they will be sufficiently competent to drive the economy into a new recession. You go girls!
To understand this issue better I would suggest reading:
The Forgotten Man: A New History of the Great Depression Paperback – May 27, 2008 by Amity Shlaes