In Prospect

Summer 2012

July marks the second anniversary of President Obama’s signing of the Dodd-Frank Wall Street Reform and Consumer Protection Act—a signature measure of his first term. Many have criticized Dodd-Frank for its regulatory complexity and failure to address the real causes of the financial crisis that gave birth to the bill. But the creation of a new Bureau of Consumer Financial Protection—the CFPB, as it’s often called—may be the most misguided product of the law, argues Nicole Gelinas in “Dodd-Frank’s Protection Racket.” Costing taxpayers $500 million yearly, the new bureau lacks the mandate to deal with the real problem facing the American financial consumer: excessive debt. Worse, warns Gelinas, the CFPB’s arbitrary power to ban financial practices that it deems unfair or discriminatory is almost guaranteed to make the American debt problem worse, just as the government did with mortgages when its housing policies “lured poorer people into financial contracts that they couldn’t afford.” The CFPB should be shut down before it does real damage.

Not only did interventionist policies in housing and credit markets help cause the 2008 financial crisis and subsequent downturn; the Obama administration’s aggressive moves since then—from massive stimulus spending to Obamacare to bailouts galore—have radiated uncertainty throughout the economy, poisoning its vital energies, as John B. Taylor maintains in “The Road to Recovery.” The prescription for economic health, Taylor believes, can be found in the work of Austrian economist Friedrich Hayek, who explained the value of market freedom, predictable policies, and commitment to the rule of law. We have lost sight of these traditional American principles in recent years, but we can surely return to them.

The Obama administration hasn’t confined its misguided policies to the economy. Outraged that black and Hispanic public school students are being disciplined more often than white students are, it blames racism and has launched an unprecedented campaign to eradicate the disparity. Why federal bureaucrats would be better placed than local officials to address school discipline is unclear, notes Heather Mac Donald in “Undisciplined.” But what’s truly outrageous about the feds’ campaign, she says, is that it ignores the student behavior that leads to the higher discipline rates. When school administrators can’t punish disruptive kids, everyone loses: the students who do want to learn; teachers, who have a harder time controlling their classrooms; and the unruly kids themselves, whose worst tendencies will be reinforced.

The sluggish economy, which has dried up tax dollars, has left many states scrambling to find new funds and new ways of firing up growth. Many are looking to legalized gambling to supply both revenue and economic development. But as Steven Malanga reports in “The State Gambling Addiction,” they’ll be disappointed on both scores. As ever more states get into the gambling business, launching lotteries and signing off on regulated casinos, competition for limited betting dollars is getting fierce. Not only is less money coming in than officials had anticipated; the money seems merely to be shifting from elsewhere in the economy. And legalized gambling carries grave social costs, from addiction to higher crime.

California’s economy, strangled by regulations and high taxes, has struggled in recent years. In “California Needs a Crude Awakening,” Tom Gray shows how the Golden State could help recapture its mojo by drilling for black gold. Both offshore and on dry land, California has oil reserves so abundant that it could easily become a major global petro-state—if liberal politicians and the environmental lobby would only agree. Those fossil-fuel haters will find uncomfortable news in Robert Bryce’s “Coal Comfort”: cheap cost and skyrocketing global demand mean that this dirtiest of energy sources is here to stay.

Many articles in this issue focus primarily on contemporary debates. Taking a much longer view, philosopher Pierre Manent’s “City, Empire, Church, Nation” explains how modernity was born in the dynamic of the West’s principal political forms. Yet Manent’s fascinating essay not only illumines our cultural trajectory; it also shines light on the European Union’s current crisis, which is as much political as financial.

—Brian C. Anderson