New Congress, New Opportunities

Today I’ll be taking part in Heritage Action for America’s 2015 Policy Summit. This event, titled “Opportunity for All, Favoritism to None,” highlights key opportunities for the new Congress to roll-back the reach of government into our lives.

The summit covers issues that range from financial market and energy regulations to healthcare and education reform. The best opportunities for success often occur within the first 100 days of a new Congress, and broad support already exists for many important policy reforms.

The Heritage Action summit highlights these issues.

As Heritage Foundation President Jim DeMint recently put it, “The Heritage Foundation is giving notice to those who use the law as profiteers, whether they walk the halls of Congress or Wall Street, who have bent the greatest institutions of the common good to serve their own ends.”

It is too often ignored, but there is a core difference between a true free enterprise system and one that marries business and politics. Partnerships between government and business inevitably serve to stifle competition and quickly devolve into cronyism. These arrangements—and their consequences—give free enterprise a bad name.

The 2015 summit provides a roadmap for Congress to come down squarely on the side of free markets.

I’m biased, but the issues I cover – financial market regulations and monetary policy – fit the policy summit’s goals better than most. The 2008 financial crisis is a classic example of what happens when government imposes thousands of detailed regulations that affect every aspect of an industry.

Couple the mind-numbingly complex regulatory environment with a complicit central bank and you end up with the too-big-to-fail fiasco that angered so many voters.

The government’s buddy-buddy response to the crisis – special loans by the Federal Reserve, bailouts of Fannie and Freddie, TARP, etc. – produced a slow, painful, economic recovery. Worse, it sets us up for a repeat, anti-competitive performance when the next crisis hits.

Lawmakers’ “solution” to the 2008 crisis was to institute more of the same policies that caused it in the first place. The new Congress has the opportunity to correct this mistake.

And they shouldn’t wait to get started.

Even though there is a perception of partisan gridlock, broad support exists for many important policy reforms. If adopted, these policies “would promote economic growth, empower individuals, and reduce government waste.”

Key financial market reforms include the following.

  • Establish a National Monetary Commission. A formal commission, as would have been created through the Centennial Monetary Commission Act of 2013, is the perfect vehicle for assessing the Fed’s overall performance and implementing the best long-term monetary policy reforms. Permanently moving the U.S. toward a truly competitive monetary system is a justifiable long-term goal, but it is unlikely to be achieved without such a formal commission.
  • Require the Fed to implement rules-based policy. Congress can immediately improve transparency and predictability by requiring the Fed to adopt a rules-based monetary policy. The Federal Reserve Accountability and Transparency Act of 2014, for example, would require such disclosure while leaving the Fed free to choose its own monetary policy rule. It would also give the Fed the flexibility to stop following its policy rule, provided that it explains this decision to Congress.
  • Amend the bankruptcy law to establish an orderly resolution process for large institu­tions.Title II of Dodd–Frank allows federal regulators to seize troubled financial firms—with minimal judicial review—and close down their affairs. The time-tested bankruptcy system, with its legal protections and judicial supervision, is a far better system. Amending bankruptcy law so that a credible resolution process exists for large financial firms is a key component to fixing the too-big-to-fail problem.
  • End the Fed’s lender-of-last-resort function.During the 2008 crisis, the supposedly independent Federal Reserve worked closely with the U.S. Treasury Department to facilitate bailouts to financially weak firms and their creditors via its so-called emergency lending authority. Congress should revoke the Federal Reserve’s emergency lending authority and close the dis­count window.
  • Eliminate the FSOC.One of the principal ways that Dodd–Frank greatly expands the federal government’s reach into financial markets is through the Financial Stability Oversight Council (FSOC). The FSOC has a broad, ill-defined mandate through which it effectively identifies the firms whose failure regulators consider catastrophic to the U.S. economy—that is, the firms considered too big to fail. Short of a full repeal of Dodd–Frank (the pre­ferred solution), Congress should eliminate the FSOC.

My Heritage colleagues have identified several other key policy reforms (outside of financial markets) that Congress should implement during its first 100 days. Here are just a few examples.

  • Require congressional approval of major rules.
  • End the annual tax extenders debate.
  • Make the necessary changes to facilitate dynamic scoring.
  • Approve the Keystone XL Pipeline.
  • Establish a BRAC-like spending commission.
  • Cap the costs of two major new farm programs, Price Loss Coverage (PLC) and Agricultural Risk Coverage (ARC).
  • End the Transportation Alternatives Program (TAP).

The federal government’s role in American life has expanded steadily for decades, regardless of which party controls Congress or the White House. In its first 100 days of the 114th Congress, lawmakers can finally start to reverse this trend.

In 1964 Ronald Reagan proclaimed that voters had to make a critical decision:

“Whether we believe in our capacity for self-government, or whether we abandon the American revolution and confess that a little intellectual elite in a far-distant capitol can plan our lives for us better than we can plan them ourselves.”

The Republican party now holds a majority in both chambers of Congress largely because voters still believe in our capacity for self-government. Voters have shown that they want a “return to a proper conservatism of free markets and a free society.”

Over these next few months, Congress’ actions will reveal whether they want the same.

 - Norbert J. Michel is a research fellow specializing in financial regulation for The Heritage Foundation’s Thomas A. Roe Institute for Economic Policy Studies.

About the Author

Norbert J. Michel, Ph.D. Research Fellow in Financial Regulations
Thomas A. Roe Institute for Economic Policy Studies

Originally appeared in Forbes