How Dodd-Frank Ate The U.S. Economic Recovery

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07/28/2015

 

Regulation: The Dodd-Frank Act's fifth anniversary this month has received surprisingly little notice. Too bad. It's a pernicious law, one that a devastating new report suggests is largely to blame for our lacklustereconomy.

How bad is Dodd-Frank? One of its main goals, cited by both the White House and the then-Democrat-run Senate, was to get rid of the "too big to fail" doctrine that made some banks too important to allow to go bust.

It sounded good at the time. But in fact, it's had the exact opposite effect, leading to a decline in small banks and rising market share for the very largest. A cynic might suspect this was how it was designed to be. But what it's done to the economy is worse.

In eye-opening testimony to the House Financial Services Committee Tuesday, American Enterprise Institute fellow Peter J. Wallison said: "I believe that all the new regulation added by the Dodd-Frank Act in 2010 is the primary reason for the slow growth this country has experienced since 2010."

For the record, Wallison isn't just another anonymous "expert" or media pundit. He was a member of the Financial Crisis Inquiry Commission and co-chair of the Financial Reform Task Force in 2009.

And unlike many pundits still sounding off, he warned loudly and often in the early 2000s that our banking system was in danger of going off the rails. Later, he warned about Dodd-Frank's many flaws. Both times he was ignored; both times ended in disaster.

In the 23 quarters since the recession ended, economic growth has averaged a meager 2.2%.

As former Sen. Phil Gramm, an economist, recently noted, if this recovery had merely been as strong as the average post-World War II recovery, we'd have had 14.4 million more jobs, and per person income — including children — would be $6,042 higher.

But that didn't happen, and Dodd-Frank deserves much of the blame, says Wallison. Instead of killing too-big-to-fail, as promised, it imposed massive new regulations on banks.

As noted here last week, based on a report by the Mercatus Center, "Dodd-Frank's 27,669 rules are five times more than any other law and more than the total number of new regulations 'for all other laws passed during the Obama administration put together.'"

This regulatory siege under Dodd-Frank has created what Wallison calls a "bifurcated" economy.

While big companies can still raise money in global financial markets, small companies depend on banks for financing. So despite the Fed's zero-interest rate policy, the new rules have severely limited credit to small companies — taking a huge bite out of our recovery.

"Since most of the growth in the U.S. economy, and especially employment, comes from small firms, the economy is underperforming" and will keep doing so until the law is altered or repealed, Wallison said.

Based on recent estimates, U.S. GDP today is about $1.8 trillion less than it should be with a normal recovery. So that may just be the price tag for Dodd-Frank.

Millions of lost jobs, trillions of lost income and a crippled small-business sector. Wallison is right: Dodd-Frank is a disaster.

Read More At Investor's Business Daily: http://news.investors.com/ibd-editorials/072815-763894-dodd-frank-bank-regulation-killed-economic-growth-after-2010.htm#ixzz3hTW0Tvfd
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