Our July 9 screed on the \u201cother Keynesian paradigm\u201d argued that over-regulation was killing what Keynes called \u201canimal spirits\u201d in the private economy.\u00a0 We quoted Jamie Dimon\u2019s peroration to Ben Bernanke where Jamie ticked off a gigantic (but still incomplete) list of regulations and reforms raining down on financial firms from all directions.\u00a0 It concluded with this fascinating exchange (emphases mine):<\/p>\n
Dimon: <\/strong>\u00a0\u201cHas anyone bothered to study the cumulative effect of all these things<\/strong>?<\/strong> \u00a0And do you have a fear like I do that when we will look back and look at them all, they will be the reason it took so long for our banks, our credit, and our businesses \u2013 and most importantly, job creation to\u00a0start going again. Is this holding us back at this point?\u201d<\/p>\n Bernanke:\u00a0 \u201c<\/strong>Has anybody done a comprehensive analysis of the impact on credit? I can\u2019t pretend that anybody really has<\/strong>. You know, it\u2019s just too complicated. We don\u2019t really have the quantitative tools to do that.\u201d<\/p>\n Well, now someone has<\/strong> indeed done a \u201ccomprehensive analysis of the impact on credit.\u201d\u00a0 Allen & Overy, a giant international law firm based in London, did an exhaustive analysis of financial regulation in major economies around the world.\u00a0 It concluded that \u201cThe regulatory approach governing the financial system lacks coherent design and is disabling the flow of credit necessary to fuel economic growth.\u201d In an interview with Bloomberg Mr. Etay Katz, the partner in charge of the study, rather precisely echoed Dimon:<\/p>\n \u201cWe basically are calling for action.\u00a0 Four years down the line after the crisis, we are seeing huge amounts of regulation, thousands and thousands of pages impacting banks in particular but not only banks.\u00a0 What we are failing to see is people stepping back and looking at the cumulative effect of all of this<\/strong>. . . There is a lack of intelligent design in global regulation\u2026\u2026.we see a lot of turf wars and incohesion and duplication and uncertainty.\u2026 We are seeing a lot of disabling and over-ratcheting up of regulation but not an intelligent design and seeing what the real economy needs at this point in time\u2026..Regulators are entrusted with stability, and they are taking that responsibility to an extreme.\u201d (emphasis mine)<\/p>\n So the good news is that we won\u2019t have another financial crisis for a while and there are plenty of high-paid jobs for lawyers and regulators in Washington, London, and Basel.\u00a0 The bad news is that, because no one is monitoring the \u201ccumulative effect\u201d of the regulatory avalanche, credit flows are weak, global GDP growth is anemic, unemployment remains high, and living standards are declining for the hallowed \u201cmiddle class\u201d whom regulators claim to be protecting. This problem will get worse because less than half of the regulations in the Dodd Frank bill have actually been spelled out, according to Washington law firm Arnold & Porter.\u00a0 The winners among banks are the too-big-to-fail giants who can afford to hire platoons of lawyers.\u00a0 The losers tend to be \u201ccommunity banks\u201d that lend to small businesses on more of a person-to-person basis.\u00a0 Oops, sorry about that, middle class.<\/p>\n On Wall Street and off, conventional macro economists largely ignore this problem of over-regulation, because, as their fearless leader Ben Bernanke (formerly chairman of the Princeton Economics Department) noted, it cannot be quantified.\u00a0 In Econoland, if it cannot be quantified it does not exist.<\/p>\n Copyright Thomas Doerflinger 2012.\u00a0 All Rights Reserved.<\/p>\n","protected":false},"excerpt":{"rendered":" Our July 9 screed on the \u201cother Keynesian paradigm\u201d argued that over-regulation was killing what Keynes called \u201canimal spirits\u201d in the private economy.\u00a0 We quoted Jamie Dimon\u2019s peroration to Ben Bernanke where Jamie ticked off a gigantic (but still incomplete) … Continue reading