The Washington Examiner’s Timothy Carney is one of the best reporters on government corruption and the “revolving door” of politics. On Monday, he caught one of the best recent examples of the heavy hand of government helping well-connected pals:
The Dodd-Frank financial regulation bill of 2010 will help the big banks by adding complexity and overhead costs that widen the protective “moat” around the biggest guys. I’ve been arguing this all along, and today JP Morgan CEO Jamie Dimon agrees.
Here’s the report from an interview with Dimon (via The Business Insider):
And not citing regulatory risk was interesting. [Dimon] even pointed out that while margins may come down, market share may increase due to a “bigger moat” – We were surprised that regulatory risk was not mentioned as one of the key risks. In Dimon’s eyes, higher capital rules, Volcker, and OTC derivative reforms longer-term make it more expensive and tend to make it tougher for smaller players to enter the market, effectively widening JPM’s “moat.” While there will be some drags on profitability – as prices and margins narrow, efficient scale players like JPM should eventually be able to gain market share. [emphasis added]
This reminds me of how Goldman Sachs CEO said http://washingtonexaminer.com/goldman-ceo-we-will-be-among-the-biggest-beneficiaries-of-financial-reform/article/4117 “we will be among the biggest beneficiaries of” the bill. Of course, all along, we’ve seen this. Here’s http://washingtonexaminer.com/article/140846 the bank lobby, in early 2011, saying “hands off Dodd-Frank.”
Carney goes into a number of other examples of “big business benefitting from regulation, at the expense of smaller players and (I believe) consumers…” Let’s look at three in particular that have garnered support from well-intentioned proponents of big government – proponents who clearly do not understand business or supply-and-demand economics:
In 2007, Wal-Mart supported increasing the federal minimum wage. This garnered praise from activists and politicians who, until that point, had long attacked Wal-Mart as not supporting the little guy in America. Unfortunately, their support was misguided, for two reasons: First, smaller competitors can’t afford to pay employees more; Wal-Mart can. Wal-Mart was clearly willing to take short-term losses for long-term gain. Second, if memory serves, the average hourly wage at Wal-Mart at the time was over $8 per hour, meaning raising the minimum wage actually cost Wal-Mart very little compared to smaller competitors, and the raise would not actually help many Wal-Mart employees.
Today’s federal minimum wage is $7.25 per hour. Wal-Mart’s average hourly pay is over $10 per hour.
Wal-Mart also supported an employer insurance mandate in 2009 and 2010. Clearly, many smaller competitors cannot afford such a mandate, thus leaving Wal-Mart able to undercut local businesses and expand its reach thanks to the kind arm of government regulations.
Finally, in 2009, Nike left the Board of Directors of the Chamber of Commerce. Publicly, Nike said it was in disagreement with the Chamber’s opposition to cap-and-trade legislation. However, Nike never left the Chamber, meaning it was still paying dues. Clearly, the Chamber’s lobbying influence was more important than alleged principles on climate change.
Related, consider what Carney reported at the time:
More importantly, Nike won’t bear most of the costs of a cap-and-trade scheme in the U.S. because Nike doesn’t make stuff in the U.S. Cap and trade adds to manufacturing costs by attaching a price to emissions, which makes energy more expensive. But “a vast majority” of Nike goods are made overseas, a company spokesman told me in an e-mail.
While Nike outsources its manufacturing to factories in Vietnam and other poor countries where greenhouse gases aren’t regulated, some of its competition makes their shoes here in the U.S., where Nike is lobbying to increase costs.
Among serious runners, for instance, Nike lags behind New Balance. New Balance makes running shoes in New England. Cap and trade would drive up the cost of making these shoes, likely cutting into New Balance’s profits and pushing up prices. This would give a competitive advantage to Nike by magnifying its cost advantage over New Balance.
Now, Carney does report that Nike said it was focused on international climate change for “a level playing field” across international boundaries. So perhaps Nike doesn’t deserve cynicism for its stance on global warming legislation. But until international climate change regulations are in place – including China – Nike will garner a huge advantage over its domestic competitors.
The federal government claims to do many things for altruistic reasons. Dodd-Frank is just one example of oversized bureaucracy whose altruism is aimed more towards special interests and less towards the average American.