Yesterday, once again, the market is crashed largely due to events in the European Union. President Obama and other policy makers wring their collective hands and say: “It’s not our fault. Our options are limited in preventing the European contagion.”
But Europe’s woes should not be an excuse. If anything, they present an opportunity for the U.S. to capture the capital that is fleeing there, which would fuel job and business growth on our shores. This is exactly what happened 15 years ago, as capital fleeing the Asian crisis helped fuel the U.S. boom of the 1990s.
The problem, of course, is that just as Europe is imploding, we’ve become more like Europe. As I argued earlier this month in National Review
, “As a result of this Europeanization, we are more tied than ever to its woes.
The good news is there is still time to let America be America again and break the chains tying us unnecessarily to the euro crisis.”
As I noted in NR, “In the mere two years President Obama has been in office, America’s workforce has declined in flexibility due to new laws and mandates. The National Labor Relations Board’s actions preventing Boeing from opening a new plant
in right-to-work South Carolina has sent chills through U.S. and international employers that potentially could create nonunion jobs. This undercuts the cost differential that has traditionally existed between U.S. and European workers.”
I also pointed out that this trend toward European stagnation started in the supposedly deregulatory administration of George W. Bush, with the crippling Sarbanes-Oxley Act that makes it difficult for smaller firms to raise capital by going public due to its cost-prohibitive accounting mandates.
But in this administration the costs and sheer number of pages of regulations keep going up, up, up, while job growth prospects go down, down, down.
Regulations cost the U.S. economy roughly $1.75 trillion per year, according to the Small Business Administration’s Office of Advocacy. The 2010 Federal Register, which spells out all new government regulations, stands at an all-time high of 81,405 pages, as counted by the Competitive Enterprise Institute’s annual study, “Ten Thousand Commandments” by Wayne Crews.
And then there is the destructiveness of some of the individual pending rules, including one in particular that could completely negate the benefits of capital inflows from foreign investors that could fuel economic growth.
Many economic observers have noted that even after the Standard & Poor’s downgrade, money keeps flowing into U.S. Treasury bills. Compared to the chaos of the Eurozone and the brutality of dictatorship such as Hugo Chavez’s Venezuela, the U.S. is still a safe haven.
In fact, there is so much cash sitting here that Bank of New York Mellon on Thursday took the extraordinary step of charging large clients, including foreign depositors, for holding cash in the bank. Under somewhat normal circumstances, the competitive reaction to the fees charged by BNY Mellon could have some good results.
Rich foreigners may wish to deposit part of their cash in regional banks and credit unions on Main Street, where they wouldn’t get charged a fee and may get a slightly higher yield. This in turn would enable these financial institutions to make more loans to entrepreneurs in their communities.
But a proposed rule by the Internal Revenue Service would discourage this by making all U.S. banks the tax collectors for the world. The rule would force banks and credit unions to report interest paid on foreign accounts — interest that by law is not even subject to U.S. taxation — to the IRS. The IRS would then share this truckload of data with their home countries, even if the U.S. does not have a reciprocal tax treaty with that nation.
If this rule goes into effect, sensitive information from U.S. financial institutions could be on an express train to Hugo Chavez’s regime. (See my May testimony before the IRS
for more details, as well as these bipartisan companion bills from Sen. Marco Rubio and Rep. Bill Posey of Florida to stop this reg.)
And we shouldn’t follow the example of some countries in the European Union who think they can make the bad news go away by banning short-selling. As I point out in The American Spectator, bans on short-selling may actually make stocks fall further during a market panic, because shorts aren’t there to buy stocks to take the profits on their negative bets. This is just what happened here when Bush and Treasury Hank Paulson pushed through a temporary short-selling ban in Fall 2008.
All in all, the best way to inoculate ourselves from the European economic contagion is to move away from European-style spending and regulation and go back to the free-market ideas that made America great and can restore American prosperity and freedom.
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