Pillars of Prosperity phần 9 ppsx

How Government Distorts theHousing Market In 2007 the financial industry finally acknowledged what many of us had been saying for quite some time: The Federal Reserve’s easy-credit poli-

How Government Distorts the

Housing Market

In 2007 the financial industry finally acknowledged what many of us had been saying for quite some time: The Federal Reserve’s easy-credit poli- cies had led to a bubble in the housing market In this section I describe how the government perverts the American dream of home ownership.

Debate on the Housing Opportunity

and Responsibility Act of 1997

Congressional Record—U.S House of Representatives

April 30, 1997

Mr Speaker, I am very pleased we will have a chance todebate housing I think it is a very important debate We have hadthis debate going on now for several weeks in the Subcommittee

on Housing and Community Opportunity Unfortunately, as far as

I am concerned, the debate has not keyed in on the real importantissue of whether or not public housing is a good idea

This particular piece of legislation does very little more thanjuggle the bureaucrats in hopes that it will do some good Publichousing started in 1937 with the U.S Housing Act, and we havebeen living with public housing ever since In 1965 HUD was cre-ated, and since that time, we have spent literally hundreds of bil-lions of dollars

We have no evidence of any sort to show that public housing is

a good idea It causes a great deal of problems and actually takeshousing away from many, many poor people But it costs a lot ofmoney and costs a lot of hardship to a lot of people The principle

of public housing is what needs to be debated Hopefully, in thegeneral debate and in the debate over the amendments, we will beable to direct a debate in that area

One thing that I think our side, the side that I represent, that isthe free market and the constitutional approach to housing, we

377

have, I would grant you, done a very poor job in presenting theviews on how poor people get houses in a free society Since wehave had 30 years of experience and there is proof now that it leads

to corruption and drug-ridden public housing projects that do notlast very long and cost too much money We who present the mar-ket view have not done a good job, emphasizing lower tax, lessregulation and growth economy, sound monetary policy, lowinterest rates; this is what will eventually give housing to the poorpeople

But I think it is very important that we not construe anybodywho opposes this bill as being one that has endorsed the notion orrejects the idea

Mr Speaker, the one other point that I would like to make isone of the arguments in favor of this bill is that it is going to be sav-ing some money in the bureaucratic process But if this is the case,one must look very closely at the CBO figures, because last yearthe HUD budget took $25-plus billion This year, with this won-derful new program, we will be asking, according to CBO, $30.4billion, an increase of about $5 billion And this is not the end, it isjust the beginning So this is an expansion of the spending on pub-lic housing

By the year 2002, it goes up to $36 billion So the best I can tell

is we were working on the fringes, we are not dealing with the realissues, we are not dealing with the principle of whether or notpublic housing is a good program

I, for one, think we can do a lot more for the poor people Thereare more homeless now, after spending nearly $600 billion overthese last 20 years, than we had before So I am on record for say-ing we must do more but we can do more by looking more care-fully at the market „

Fannie Mae and Freddie Mac Subsidies

Distort the Housing Market

House Financial Services Committee

Congressional Record—U.S House of Representatives

September 10, 2003

Mr Chairman, thank you for holding this hearing on the sury Department’s views regarding Government SponsoredEnterprises (GSEs) I would also like to thank Secretaries Snowand Martinez for taking time out of their busy schedules to appearbefore the committee

Trea-I hope this committee spends some time examining the specialprivileges provided to GSEs by the federal government According

to the Congressional Budget Office, the housing-related GSEsreceived $13.6 billion worth of indirect federal subsidies in fiscalyear 2000 alone Today, I will introduce the Free Housing MarketEnhancement Act, which removes government subsidies from theFederal National Mortgage Association (Fannie Mae), the FederalHome Loan Mortgage Corporation (Freddie Mac), and theNational Home Loan Bank Board

One of the major government privileges granted to GSEs is aline of credit with the United States Treasury According to someestimates, the line of credit may be worth over $2 billion Thisexplicit promise by the Treasury to bail out GSEs in times of eco-nomic difficulty helps the GSEs attract investors who are willing

to settle for lower yields than they would demand in the absence

of the subsidy Thus, the line of credit distorts the allocation ofcapital More importantly, the line of credit is a promise on behalf

of the government to engage in a huge unconstitutional andimmoral income transfer from working Americans to holders ofGSE debt

The Free Housing Market Enhancement Act also repeals theexplicit grant of legal authority given to the Federal Reserve topurchase GSE debt GSEs are the only institutions besides the

How Government Distorts the Housing Market 379

United States Treasury granted explicit statutory authority tomonetize their debt through the Federal Reserve This provisiongives the GSEs a source of liquidity unavailable to their competi-tors.

The connection between the GSEs and the government helpsisolate the GSE management from market discipline This isola-tion from market discipline is the root cause of the recent reports

of mismanagement occurring at Fannie and Freddie After all, ifFannie and Freddie were not underwritten by the federal govern-ment, investors would demand Fannie and Freddie provideassurance that they follow accepted management and accountingpractices

Ironically, by transferring the risk of a widespread mortgagedefault, the government increases the likelihood of a painful crash

in the housing market This is because the special privilegesgranted to Fannie and Freddie have distorted the housing market

by allowing them to attract capital they could not attract underpure market conditions As a result, capital is diverted from itsmost productive use into housing This reduces the efficacy of theentire market and thus reduces the standard of living of all Amer-icans

Despite the long-term damage to the economy inflicted by thegovernment’s interference in the housing market, the govern-ment’s policy of diverting capital to other uses creates a short-termboom in housing Like all artificially-created bubbles, the boom inhousing prices cannot last forever When housing prices fall,homeowners will experience difficulty as their equity is wiped out.Furthermore, the holders of the mortgage debt will also have aloss These losses will be greater than they would have otherwisebeen had government policy not actively encouraged overinvest-ment in housing

Perhaps the Federal Reserve can stave off the day of reckoning

by purchasing GSE debt and pumping liquidity into the housingmarket, but this cannot hold off the inevitable drop in the housingmarket forever In fact, postponing the necessary but painful mar-ket corrections will only deepen the inevitable fall The more peo-ple invested in the market, the greater the effects across the econ-omy when the bubble bursts

No less an authority than Federal Reserve Chairman AlanGreenspan has expressed concern that government subsidies pro-vided to GSEs make investors underestimate the risk of investing

in Fannie Mae and Freddie Mac

Mr Chairman, I would like to once again thank the FinancialServices Committee for holding this hearing I would also like tothank Secretaries Snow and Martinez for their presence heretoday I hope today’s hearing sheds light on how special privilegesgranted to GSEs distort the housing market and endanger Ameri-can taxpayers Congress should act to remove taxpayer supportfrom the housing GSEs before the bubble bursts and taxpayers areonce again forced to bail out investors who were misled by foolishgovernment interference in the market I therefore hope this com-mittee will soon stand up for American taxpayers and investors byacting on my Free Housing Market Enhancement Act „

The American Dream Downpayment Act

Congressional Record—U.S House of Representatives

October 1, 2003

Mr Speaker, the American dream, as conceived by the nation’sfounders, has little in common with H.R 1276, the so-called Amer-ican Dream Downpayment Act In the original version of theAmerican dream, individuals earned the money to purchase ahouse through their own efforts, oftentimes sacrificing other goods

to save for their first downpayment According to the sponsors ofH.R 1276, that old American dream has been replaced by a newdream of having the federal government force your fellow citizens

to hand you the money for a downpayment

H.R 1276 not only warps the true meaning of the Americandream, but also exceeds Congress’s constitutional boundaries and

How Government Distorts the Housing Market 381

interferes with and distorts the operation of the free market.Instead of expanding unconstitutional federal power, Congressshould focus its energies on dismantling the federal housingbureaucracy so the American people can control housingresources and use the free market to meet their demands foraffordable housing.

As the great economist Ludwig von Mises pointed out, tions of the proper allocation of resources for housing and othergoods should be determined by consumer preference in the freemarket Resources removed from the market and distributedaccording to the preferences of government politicians andbureaucrats are not devoted to their highest-valued use Thus,government interference in the economy results in a loss of eco-nomic efficiency and, more importantly, a lower standard of livingfor all citizens

ques-H.R 1276 takes resources away from private citizens, throughconfiscatory taxation, and uses them for the politically favoredcause of expanding home ownership Government subsidization

of housing leads to an excessive allocation of resources to the ing market Thus, thanks to government policy, resources thatwould have been devoted to education, transportation, or someother good desired by consumers, will instead be devoted to hous-ing Proponents of this bill ignore the socially beneficial uses themonies devoted to housing might have been put to had thoseresources been left in the hands of private citizens

hous-Finally, while I know this argument is unlikely to have mucheffect on my colleagues, I must point out that Congress has no con-stitutional authority to take money from one American and redis-tribute it to another Legislation such as H.R 1276, which takes taxmoney from some Americans to give to others whom Congress hasdetermined are worthy, is thus blatantly unconstitutional

I hope no one confuses my opposition to this bill as opposition

to any congressional actions to ensure more Americans haveaccess to affordable housing After all, one reason many Ameri-cans lack affordable housing is because taxes and regulations havemade it impossible for builders to provide housing at a price thatcould be afforded by many lower-income Americans Therefore,Congress should cut taxes and regulations A good start would begenerous housing tax credits Congress should also consider tax

credits and regulatory relief for developers who provide housingfor those with low incomes.

For example, I am cosponsoring H.R 839, the Renewing theDream Tax Credit Act, which provides a tax credit to developerswho construct or rehabilitate low-income housing

H.R 1276 distorts the economy and violates constitutional hibitions on income redistribution A better way of guaranteeing

pro-an efficient housing market where everyone could meet their ownneeds for housing would be for Congress to repeal taxes and pro-grams that burden the housing industry and allow housing needs

to be met by the free market

Therefore, I urge my colleagues to reject this bill and insteaddevelop housing policies consistent with constitutional principles,the laws of economics, and respect for individual rights „

Reforming the Government Sponsored

Enterprises (Fannie Mae and Freddie Mac)

House Committee on Financial Services

Congressional Record—U.S House of Representatives

May 9, 2007

H.R 1427 fails to address the core problems with the ment Sponsored Enterprises (GSEs) Furthermore, since this legis-lation creates new government programs that will further artifi-cially increase the demand for housing, H.R 1427 increases theeconomic damage that will occur from the bursting of the housingbubble The main problem with the GSEs is the special privilegesthe federal government gives the GSEs According to the Congres-sional Budget Office, the housing-related GSEs received almost

govern-$20 billion worth of indirect federal subsidies in fiscal year 2004alone, while Wayne Passmore of the Federal Reserve estimates the

How Government Distorts the Housing Market 383

value of the GSE’s federal subsidies to be between $122 and $182billion.

One of the major privileges the federal government grants tothe GSEs is a line of credit from the United States Treasury.According to some estimates, the line of credit may be worth over

$2 billion GSEs also benefit from an explicit grant of legal ity given to the Federal Reserve to purchase the debt of the GSEs.GSEs are the only institutions besides the United States Treasurygranted explicit statutory authority to monetize their debt throughthe Federal Reserve This provision gives the GSEs a source of liq-uidity unavailable to their competitors

author-This implicit promise by the government to bail out the GSEs intimes of economic difficulty helps the GSEs attract investors whoare willing to settle for lower yields than they would demand inthe absence of the subsidy Thus, the line of credit distorts the allo-cation of capital More importantly, the line of credit is a promise

on behalf of the government to engage in a massive tional and immoral income transfer from working Americans toholders of GSE debt This is why I am offering an amendment tocut off this line of credit

unconstitu-The connection between the GSEs and the government helpsisolate the GSEs’ management from market discipline This isola-tion from market discipline is the root cause of the mismanage-ment occurring at Fannie and Freddie After all, if investors didnot believe that the federal government would bail out Fannie andFreddie if the GSEs faced financial crises, then investors wouldhave forced the GSEs to provide assurances that the GSEs are fol-lowing accepted management and accounting practices beforeinvestors would consider Fannie and Freddie to be good invest-ments

Former Federal Reserve Chairman Alan Greenspan hasexpressed concern that the government subsidies provided to theGSEs makes investors underestimate the risk of investing in Fan-nie Mae and Freddie Mac Although he has endorsed many of theregulatory “solutions” being considered here today, ChairmanGreenspan has implicitly admitted the subsidies are the truesource of the problems with Fannie and Freddie

H.R 1427 compounds these problems by further insulating theGSEs from market discipline By creating a “world-class” regulator,

Congress would send a signal to investors that investors need notconcern themselves with investigating the financial health and sta-bility of Fannie and Freddie since a “world-class” regulator is per-forming that function.

However, one of the forgotten lessons of the financial scandals

of a few years ago is that the market is superior at discovering andpunishing fraud and other misbehavior than are government reg-ulators After all, the market discovered, and began to punish, theaccounting irregularities of Enron before the government regula-tors did

Concerns have been raised about the new regulator’s pendence from the Treasury Department Although the Treasurynow supports the creation of a new regulator, the compromisebetween Treasury and the drafters of H.R 1427 does not addressconcerns that isolating the regulator from Treasury oversight maylead to regulatory capture

inde-Regulatory capture occurs when regulators serve the interests

of the businesses they are supposed to be regulating instead of thepublic interest While H.R 1427 does have some provisions thatclaim to minimize the risk of regulatory capture, regulatory cap-ture is always a threat where regulators have significant controlover the operations of an industry After all, the industry obvi-ously has a greater incentive than any other stakeholder to influ-ence the behavior of the regulator

The flip side of regulatory capture is that managers and owners

of highly subsidized and regulated industries are more concernedwith pleasing the regulators than with pleasing consumers orinvestors, since the industries know that investors will believe all

is well if the regulator is happy Thus, the regulator and the lated industry may form a symbiosis where each looks out for theother’s interests while ignoring the concerns of investors

regu-Furthermore, my colleagues should consider the ity of an “independent regulator.” The Founders provided forthree branches of government—an executive, a judiciary, and alegislature Each branch was created as sovereign in its sphere, andthere were to be clear lines of accountability for each branch How-ever, independent regulators do not fit comfortably within thethree branches; nor are they totally accountable to any branch.Regulators at these independent agencies often make judicial-like

constitutional-How Government Distorts the Housing Market 385

decisions, but they are not part of the judiciary They often makerules, similar to the ones regarding capital requirements, that havethe force of law, but independent regulators are not legislative.And, of course, independent regulators enforce the laws in thesame way, as do other parts of the executive branch; yet inde-pendent regulators lack the day-to-day accountability to the exec-utive that provides a check on other regulators.

Thus, these independent regulators have a concentration ofpowers of all three branches and lack direct accountability to any

of the democratically chosen branches of government This flies inthe face of the Founders’ opposition to concentrations of powerand government bureaucracies that lack accountability These con-cerns are especially relevant considering the remarkable degree ofpower and autonomy this bill gives to the regulator For example,

in the scheme established by H.R 1427 the regulator’s budget isnot subject to appropriations This removes a powerful mechanismfor holding the regulator accountable to Congress While the regu-lator is accountable to a board of directors, this board may conductall deliberations in private because it is not subject to the SunshineAct

Ironically, by transferring the risk of widespread mortgagedefaults to the taxpayers through government subsidies and con-vincing investors that all is well because a “world-class” regulator

is ensuring the GSEs’ soundness, the government increases thelikelihood of a painful crash in the housing market This is becausethe special privileges of Fannie and Freddie have distorted thehousing market by allowing Fannie and Freddie to attract capitalthey could not attract under pure market conditions As a result,capital is diverted from its most productive uses into housing Thisreduces the efficacy of the entire market and thus reduces the stan-dard of living of all Americans

Despite the long-term damage to the economy inflicted by thegovernment’s interference in the housing market, the govern-ment’s policy of diverting capital into housing creates a short-termboom in housing Like all artificially created bubbles, the boom inhousing prices cannot last forever When housing prices fall,homeowners will experience difficulty as their equity is wiped out.Furthermore, the holders of the mortgage debt will also have aloss These losses will be greater than they would have been had

government policy not actively encouraged overinvestment inhousing.

H.R 1427 further distorts the housing market by artificiallyinflating the demand for housing through the creation of anational housing trust fund This fund further diverts capital tohousing that, absent government intervention, would be put to usemore closely matching the demands of consumers Thus, this newhousing program will reduce efficiency and create yet anotherunconstitutional redistribution program

Perhaps the Federal Reserve can stave off the day of reckoning

by purchasing the GSEs’ debt and pumping liquidity into thehousing market, but this cannot hold off the inevitable drop in thehousing market forever In fact, postponing the necessary andpainful market corrections will only deepen the inevitable fall Themore people are invested in the market, the greater the effectsacross the economy when the bubble bursts

Instead of addressing government policies encouraging themisallocation of resources to the housing market, H.R 1427 furtherintroduces distortion into the housing market by expanding theauthority of federal regulators to approve the introduction of newproducts by the GSEs Such regulation inevitably delays the intro-duction of new innovations to the market, or even prevents somepotentially valuable products from making it to the market Ofcourse, these new regulations are justified in part by the GSEs’government subsidies We once again see how one bad interven-tion in the market (the GSEs’ government subsidies) leads toanother (the new regulations)

In conclusion, H.R 1427 compounds the problems with theGSEs and may increase the damage that will be inflicted by abursting of the housing bubble This is because this bill creates anew unaccountable regulator and introduces further distortionsinto the housing market via increased regulatory power H.R 1427also violates the Constitution by creating yet another unaccount-able regulator with quasi-executive, judicial, and legislative pow-ers Instead of expanding unconstitutional and market distortinggovernment bureaucracies, Congress should act to remove tax-payer support from the housing GSEs before the bubble bursts andtaxpayers are once again forced to bail out investors who weremisled by foolish government interference in the market „

How Government Distorts the Housing Market 387

Mortgage Industry Has Its Roots in the

Federal Reserve’s Inflationary Monetary

Policy

Statement before the Financial Services Committee

Congressional Record—U.S House of Representatives

September 20, 2007

Mr Chairman, the situation facing us now in the mortgageindustry has its roots in the Federal Reserve’s inflationary mone-tary policy Without addressing the roots of the current crisis, anymeasures undertaken to improve the situation will be doomed tofail

As with asset bubbles and investment manias in past history,the fuel for the current housing bubble had its origins in monetarymanipulation The housing boom was caused by the FederalReserve’s policy resulting in artificially low interest rates Con-sumers, misled by low interest rates, were looking to consume,while homebuilders saw the low interest rates as a signal to build,and build they did

One of the primary means the Federal Reserve uses to stimulatethe economy is manipulation of the federal funds rate and the dis-count rates, which are used as benchmark rates throughout theeconomy The interest rate is the price of time, as the value of adollar today and the value of a dollar one year from now are notthe same Just like any price in the market, interest rates have animportant informational signaling purpose Government pricefixing of the interest rate has the same deleterious effects as pricecontrols in other areas

Reduction in the interest rate has two major effects: it ages consumption over saving; and it makes long-term, capital-intensive projects cheaper to undertake Under ChairmanGreenspan’s tenure, the federal funds rate was so low that the realinterest rate (that is the nominal interest rate minus inflation) was

negative With a negative real interest rate, someone who savesmoney will literally lose the value of that money.

The Federal Reserve continued and still continues to increasethe money supply After ceasing the publication of M3 last Febru-ary, private economists have calculated that M3 has risen at anannual rate of almost 12 percent, which is faster than we have seensince the 1970s

Millions of Americans now find themselves stuck in a financialquandary that is not their fault The result of manipulation of theinterest rate, money supply, and mortgage markets is the recentlypopped housing bubble

Further regulation of the banking sector, of mortgage brokers,mortgage lenders, or credit rating agencies will fail to improve thecurrent situation, and will do nothing to prevent future real estatebubbles Any proposed solutions which fail to take into accountthe economic intervention that laid the ground for the bubble aremerely window dressing, and will not ease the suffering of mil-lions of American homeowners I urge my colleagues to strike atthe root of the problem and address the Federal Reserve’s infla-tionary monetary policy „

How Government Distorts the Housing Market 389

Spending, Taxes, and Regulations

This final section contains sundry statements that I have made on ous government interventions in the economy Sadly, most of what the federal government currently does can be justified neither by the Consti- tution nor sound economics.

The Chrysler Bailout

Congressional Record—U.S House of Representatives

November 21, 1979

Although I was not in Congress when either the Lockheed orthe New York City bailouts were enacted, I would have opposedboth of those actions, as well as the proposed action regardingChrysler, for many of the same reasons Let me explain those rea-sons

In a nation that is sinking in a sea of debt, it is irresponsible forthis Congress to be considering a measure that would add billions

to that debt The expansion of credit is one of the primary forms ofinflation It is not merely inflationary in its effects; it is inflationitself If this $1.5 billion is created by the federal government, itwill ripple and percolate through our banking system, andbecause of our fractional reserve system, the ultimate growth inthe money supply will be far more than $1.5 billion The standardmultiplier is six; that means an infusion of $1.5 billion will eventu-ally result in a $9 billion increase in the money supply In his testi-mony before the House Banking Committee, the former Chairman

of the Council of Economic Advisers, Alan Greenspan, stated that

Loan guarantees, insofar as the issue of inflation is

con-cerned, are virtually indistinguishable from on-budget

financing, and that the major cause of inflation into this

country has been an excessive amount of credit

preemp-tion, largely in the area of guarantees, which has

cre-ated excessive monetary growth and is the base of

infla-tion in the system

393

A vote for the Chrysler bailout is, simply put, a vote for furtherinflation.

Some may argue that the inflation is necessary in order to avoidunemployment, echoing the now repudiated idea of A.W Phillips,

that less inflation means more unemployment and vice versa The

past few years of our experience with inflation and unemploymentshould convince everyone that high inflation and high unemploy-ment can exist side-by-side I believe the connection is even closer:Inflation causes unemployment—perhaps not immediately, but inthe longer run—and we are now in the longer run of our past infla-tionary policies It follows that a vote for aid to Chrysler, because

it is a vote for inflation, is also a vote for more unemployment.Such unemployment may not be obvious, but it will nonethe-less be real One of the things that bothers me most about thisentire discussion is that it centers around only what is obvious.Saving 100,000 jobs at Chrysler is obvious; losing 100,000 jobs, one

by one around the country is not obvious, but they will less be lost, should aid to Chrysler pass

nonethe-Let me explain why I believe this to be so If this aid takes theform of loan guarantees rather than direct loans (and, I add paren-thetically, that over $1 billion of the New York City loan guaran-tees has been converted into direct federal loans by the FederalFinancing Bank) it will be tantamount to an allocation of credit toChrysler That means that Chrysler will get capital that wouldhave gone to other more efficient and more profitable businesses.Because this capital will be diverted by these loan guarantees to aless efficient business, it is highly probable that more jobs will belost through invisible unemployment than would be wereChrysler to fail I hasten to point out that this will result in all theincreased costs to the government that the proponents of thebailout so loudly declare they wish to avoid Of course, the costswill not all be centered in Michigan; unemployment checks, wel-fare checks, food stamp benefits will increase nationwide, in bigand small towns, urban centers and rural America Rather than afew localities suffering noticeably; many will suffer almost invisi-bly Workers who have nothing to do with Chrysler will lose theirjobs or pay the taxes and higher prices caused by this bailout Theaverage industrial worker earns half of what the average Chryslerworkers earns, and under the UAW contract, the Chrysler workers

will be receiving a $500 million pay and benefits rise over the nextthree years I have always thought that businesses in trouble cutcosts, the Chrysler workers will receive far more in wage increasesalone over the next ten years than this bailout amounts to That(and other facts) would indicate to me that the Chrysler workershave not made any sacrifices and that they hope, through federalaid, to maintain their relatively high wages at the expense of thelower paid workers in this country We are being asked to shift theburden from the relatively well-off workers at Chrysler to the rel-atively worse-off workers throughout America A Chrysler bailoutwill be a shifting of burdens that should be borne by thoseinvolved.

Do we in Congress have the authority, either moral or tional, to cause this suffering? I can find no provision in the Con-stitution authorizing Congress to make loans or loan guarantees toanyone, let alone to major corporations Nor have I yet seen a validmoral argument concluding that we, as representatives of all thepeople, have the right to tax the American people—most of whomreceive less in wages and benefits than Chrysler workers—to sup-port a multibillion-dollar corporation What right have we—and Ipose a serious question that deserves an answer—what right have

constitu-we to force the American taxpayers to risk their money in a ness venture which private investors dealing in their own fundshave judged to be too risky? Chrysler paper is now classified; thatmeans that any private investor who is handling funds for hisdepositors, shareholders, or clients may be judged as violating hisfiduciary responsibilities should he invest in Chrysler Don’t wehave a trust equally important from the American people? Are wenot betraying their trust by voting for a Chrysler bailout? I believeso

busi-Rather than supporting this patchwork and temporary tion,” we should be addressing those factors, over which we havecontrol and for which we are responsible, that have broughtChrysler to the brink of bankruptcy In his testimony before theHouse Banking Committee, President Iacocca listed three factorsthat caused the troubles at Chrysler: (1) government regulations;(2) inflation; and (3) the gasoline allocation system that caused lastspring’s gasoline shortages Please note that all three factors arethe responsibility of the Congress We wrote the regulations or

“solu-Spending, Taxes, and Regulations 395

gave some bureaucrats a blank check to write the regulations Weare responsible for inflation through our mismanagement of themonetary system And we empowered the Department of Energy

to create a gasoline allocation system that brilliantly achieved what

I had heretofore thought impossible: gasoline shortages in ton, the oil capital of the United States

Hous-It is our responsibility to diagnose the Chrysler disease rately Instead, we are acting like political quacks, prescribingpotions to treat symptoms, while the cause of those symptomsrages on unabated Chrysler is not unique; it is merely the proto-type, the harbinger, of crises to come Dr Greenspan testified thatthe most likely sequence of events, in his view, would be federalloan guarantees followed by a Chrysler failure anyway Unless thedisease is correctly diagnosed, the potions we prescribe will killthe patient

accu-I would urge this Committee and the whole Senate to act withmore deliberation than the House has acted This form of welfarefor corporations must end Just because it was extended to Lock-heed does not mean that it should be extended to Chrysler Badprecedents should not be followed, and these precedents are par-ticularly bad Because Lockheed, a large corporation, New YorkCity, the largest city, and now Chrysler, the tenth largest corpora-tion in the country, are the three institutions to which aid has been

or will be extended, one can conclude that there is an obvious tern of discrimination in the action of this Congress

pat-Last year there were 200,000 bankruptcies in this country,

according to U.S News & World Report Yet we have selected only

the largest for our aid This is discrimination of the crassest sort

We ignore the smaller victims of this government’s policies simplybecause they are small Only the largest, those with the most clout,the most pull, get our attention This aristocracy of pull is morallyindefensible What answer can be given to the small businessmandriven into bankruptcy by government regulations when he asks:

“You bailed out Chrysler, why not me?” No justification can begiven for this discrimination between the powerful and the pow-erless, the big and the small

It is an axiom of our legal system that all citizens are to enjoythe equal protection of the laws That axiom is violated daily byour tax laws, and now by this proposed corporate welfare plan for

Chrysler Apparently some citizens are more equal than others.That is a notion I reject, and I hope you do, too I urge you to rejectthis proposal for all the reasons I have stated „

The Balanced Budget Amendment

House Committee on the Budget

Congressional Record—U.S House of Representatives

February 4, 1997

The social, corporate, and monetary interventionists have comeforth with balanced budget language allowing them to retainpower and control while, at the same time, increasing their likeli-hood of re-election at the hands of their constituents who, by morethan 80 percent, favor passage of a balanced budget amendment One must wonder why anyone would take such an amendment

by Congress seriously There can be no reasonable expectation that

a Congress, which flagrantly circumvents the existing limitations

on governmental power contained in the first ten amendments tothe very same Constitution, would adhere to provisions of anyamendment purporting to balance the federal budget In its firstmeeting this session, this very Congress voted to suspend thefourth amendment as it enacted a House Rule to allow drug test-ing of Congressional personnel

However, even if Congress would adhere to the plain language

of such an amendment, no language has yet been put forth whichwould genuinely prohibit various interventionist factions frommoving the nation further down its current path of fiscal demise The monetary interventionists offer amendment languagewhich allows circumvention of the deficit restrictions by Congress

“in case of recession.” This policy, based in the now-discreditedKeynesian paradigm under which governments borrow and

Spending, Taxes, and Regulations 397

spend their way out of their own prior inflation-induced sions, serves as no real justification for amendment circumvention Similarly, the social interventionists propose language which

reces-“herds” socially-sacred cows to the off-budget “pasture.” Ratherthan acknowledge the irrefutable notion that subsidization of non-productivity begets more nonproductivity, new “social experi-ments” changing only a minor variable or two, are implementedwhich do little more than increase the number of recipients evermore dependent upon programs ultimately destined to fail Lastly, the corporate interventionists proffer language toexcuse Congress from a balanced budget not only during periods

of “declared war” but even during periods when the United States

is engaged in “military conflicts.” The taxpayers’ realization of thetrue cost of war is one of the soundest checks on government’s pol-icy to police the world Instead, governments have historicallyresorted to use of the monetary printing presses and excessive bor-rowing to sidestep this vital form of political pressure

Conspicuously absent from all proposed language are wordsnecessary to address the real issue The real issue is excessivegrowth, spending, and taxation by a Congress which has longignored the already-existing, Constitutionally-imposed limits con-tained in the Bill of Rights

Rather than adding yet another of what have become less amendments to a Congressionally-diluted Constitution; anamendment which is only remotely prudent because protectiveprovisions of the Bill of Rights have been ignored over time whenpolitically convenient; let us instead acknowledge the limitationsalready placed on the federal government’s power, and conse-quently, government’s level of spending and borrowing „