In June 2010, the Obama administration announced the start of “Recovery Summer.” Sixteen months later, not even the most shameless Democratic partisans can pretend that America is not mired in economic malaise. Two weeks ago, the Dow Jones Industrial Average dropped 6.4 percent — its worst week since the October 2008 financial crisis. As Barron’s Alan Abelson aptly recounted, the week began as a “pounding” and ended in a “massacre.”
The administration’s response has been to return time and again to the familiar liberal themes: Tax more, borrow more, spend more. But facts are stubborn things, and even the White House recognizes that its stated desire for economic growth is contradicted by the immense regulatory burdens that its agencies are levying on American businesses.
Of course, the administration talks about regulatory reform, to “underscore the importance of reducing regulatory burdens and regulatory uncertainty, particularly as our economy continues to recover.” But it has overwhelmingly failed to match words with deeds. The best — or, shall we say, worst — example of this is the Commodity Futures Trading Commission’s foolish and unlawful proposed regulations for derivatives.
I touched on this subject in a prior column. In short: Dodd-Frank rightly called on the CFTC to bring greater transparency to the opaque world of over-the-counter derivatives. But Congress did not intend the regulations to burden utilities, airlines and other companies that use derivatives for ordinary business purposes — namely, hedging against increased costs of doing business — and so it specifically exempted “end users” from the CFTC’s jurisdiction.
CFTC Chairman Gary Gensler initially recognized this limit, telling Congress that the agency’s regulations would affect only “15 to 20 large complex financial institutions.” But the CFTC is now effectively nullifying the end-user exemption; its proposed regulations reach innumerably more non-financial businesses. The CFTC would require those companies to set aside vast amounts of capital to insure against derivatives meltdowns, that is, requiring the companies to lock down billions of dollars in reserves instead of investing in jobs and equipment.
The effects of those regulations, if President Obama lets them go into effect, would be ruinous. The Treasury Department estimates that the annual amount of capital locked up by these regulations would be $2.05 trillion. Even the liberal Progressive Policy Institute warns that the ultimate cost of such unnecessary regulation “will be the loss of American jobs.”
Just the effects of these regulations on energy prices are frightening: According to a 2010 report by the Edison Electric Institute, these types of regulations could raise power costs by 5 to 15 percent. Companies struggling to recover from the recession would need to pay more just to keep the lights on and the factory warm.
In short, to quote CFTC Commissioner Scott O’Malia, a critic of the CFTC’s proposal, “costs for commercial end-users will increase,” because Mr. Gensler and others “ignored congressional direction.”
The CFTC proposed its rules in December 2010. Thanks to the ensuing avalanche of criticism, the CFTC’s chairman has delayed these rules until next year. But delay is not enough: So long as the CFTC’s proposal looms over American industry, it casts an ominous shadow of uncertainty. Companies will not invest capital today when they cannot be sure whether those funds will need to be locked away in government-mandated reserves tomorrow.
Mr. Obama and the congressional oversight committees must act now to end the uncertainty; they must demand that the CFTC pare back its regulations to the originally intended — and lawfully prescribed — limits. Mr. Obama hides behind the CFTC’s nominal “independence,” but he has many tools to block the actions of even “independent” agencies. Where an agency’s action would wreak havoc on the economy, he has a constitutional duty to stop it. If all else fails, the president always has power to demote the chairman, and perhaps even to fire the commissioners, over disastrous agency decisions.
On this issue, the buck literally stops with the president. He must take his responsibilities seriously.
• C. Boyden Gray served as White House Counsel in administration of President George H.W. Bush.