Monday, July 19, 2010

Is Dodd-Frank the New Smoot-Hawley?

Eighty years ago, at the twilight of the great Republican age from 1861 to 1933, the Congress passed and the president signed the tariff bill to end all tariff bills.

We are talking about Smoot-Hawley, the Tariff Act of 1930. It was sponsored in the Senate by Sen. Reed Smoot (R-UT) and in the House by Rep. Willis Hawley (R-OR). It raised tariffs on imports to near record levels and is credited with helping to put the Great in the Depression of 1929-1933.

Smoot-Hawley was signed into law in June 1930. In November 1930, in the mid-terms, Republicans lost 52 seats and control in the House and the GOP lost eight seats in the Senate, but not control.

For us today, there is something almost menacing and Dickensian about the compound word "Smoot-Hawley." It seems to ooze narrow-minded folly and blindness.

Is it possible that history is repeating itself?

It is telling that the stock market started to swoon back in April 2010 about when it became clear that the Dodd-Frank finance reform bill was likely to pass. Why? Well maybe the market is starting to price in the uncertainty and the costs that the complex Dodd-Frank bill is likely to insert into the US economy. Various analysts have looked at the bill (JP Morgan Chase reportedly has 100 teams working on it) and they all seem to agree that it will introduce a vast new infrastructure of regulation and political meddling.

In other words, the Democrats are going for another Big Push at what they have been doing for 100 years. Regulating, politicizing, bureaucratizing. That's what they know how to do. That is, apparently, the only thing they know how to do. So they are doing it. Seems just like old times and a rerun of the Sen. Smoot and Rep. Hawley show in another era.

Well, at least the American people got rid of the protectionist Republicans in short order.

The question is: what will the American people do with the Smoots and the Hawleys of our time?

Sen. Dodd (D-CT) and Rep. Frank (D-MA) were both enthusiastic supporters of politicized home mortgages in the last hurrah of Fannie and Freddie, before they became a $400 billion black hole. Fannie and Freddie were at the center of the reckless credit binge of the last ten years. Now they want to regulate the finance industry more closely, but do nothing about Fannie and Freddie.

Chris Dodd, in case you have forgotten, was famous as a "friend of Angelo" Mozilo, CEO of Countrywide, the deceased mortgage mill that fed mortgages to Fannie and Freddie.

It would be appropriate if our modern day Smoot and Hawley blindly set up an electoral disaster for the Democrats in the House just like their political role models. After all, experts are already predicting a 40 seat swing to Republicans in the House, and big wins in the Senate.

The point is that politicians then and now are venal and blind to everything except the next political power play. They know nothing about economics. They know nothing about justice. They know nothing about finance.

What politicians know how to do is divide the people and get elected. And they know how to reward their supporters.

That's why limited government is such a good idea. The more power you give to politicians the more they will abuse it. You may think that this program or that program will benefit you, and therefore the nation at large will benefit. Remember "what's good for liberals is good for the country?"

But the power you give to your guys can be turned, with the change of parties, into a scourge to cut your back to ribbons.

Some people only learn this the hard way.

To help make the connection with Smoot-Hawley, there seems to be a Dickensian flavor to the very names of the legislators proudly sponsoring our 21st century Regulation of Abominations. Dodd-Frank sounds awfully close to that venal law firm of Dodson and Fogg that made life so difficult for the admirable Mr. Pickwick.

Let's hope for the early end to Democratic power. But let us also hope that the aftermath of the Smoot-Hawley tariff, the disaster of 1929 to 1939, the valley of the shadow of death, is not visited again upon the American people.

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