Congressional Problem Creation

Opinion Editorial by Walter E. Williams - May 20, 2008

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Most of the great problems we face are caused by politicians creating solutions to problems they created in the first place.

Politicians and a large percentage of the public lose sight of the unavoidable fact that for every created benefit, there’s also a created cost or, as Nobel Laureate Milton Friedman put it, “There’s no free lunch.”

While the person who receives the benefit might not pay or even be aware of the cost, but as sure as night follows day, there is a cost borne by someone. Let’s look at a couple of congressionally created problems.

The Community Reinvestment Act of 1977, whose provisions were strengthened during the Clinton and Bush administrations, is a federal law that mandates or intimidates lenders to offer credit throughout their entire market and discourages them from restricting their credit services to high-income markets, a practice known as redlining.

The Community Reinvestment Act encouraged banks and thrifts to make so-called “no doc” and “liar” loans to customers who had no realistic ability to pay them back.

A decade of monetary expansion by the Federal Reserve Bank, contributing to the housing bubble, encouraged lending institutions to take risks they otherwise would not have taken.

Government actions created the subprime crisis and now government-proposed “solutions,” such as foreclosure holidays, bailouts and further regulation of financial institutions, to the problems they created will create more problems.

Congress, doing the bidding of environmental extremists, created our energy supply problem.

Oil and gas exploration in a tiny portion of the coastal plain of Alaska’s Arctic National Wildlife Refuge would, according to a 2002 U.S. Geological Survey’s estimate, increase our proven domestic oil reserves by approximately 50 percent.

The Pacific and Atlantic Oceans and eastern Gulf of Mexico offshore areas have enormous reserves of oil and natural gas. These energy sources of oil have also been placed off limits by Congress.

Because of onerous regulations, it has been 30-plus years since a new refinery has been built. Similar regulations also explain why the U.S. nuclear energy production is a fraction of what it might be.

Congress’ solution to our energy supply problems is not to relax supply restrictions but to enact the Energy Independence and Security Act of 2007 that mandates that oil companies increase the amount of ethanol mixed with gasoline.

Anyone with an ounce of brains would have realized that diverting crops from food to fuel use would raise the prices of a host of corn-related foods, such as corn-fed meat and dairy products.

Wheat and soybeans prices have also risen as a result of fewer acres being planted in favor of corn.

A Purdue University study found that the ethanol program has cost consumers $15 billion in higher food costs in 2007 and it will be considerably higher in 2008.

Higher food prices, as a result of the biofuels industry, have not only affected the U.S. consumer, they have had international consequences as seen in the food riots that have broken out in Egypt, Haiti, Yemen, Bangladesh and other nations.

What’s the congressional response? On May 1, Sen. Charles Schumer, D-N.Y., chairman of the Joint Economic Committee, convened a hearing on rising food prices saying, “The anxiety felt over higher food prices is going to be just as widespread, and will equal or surpass, the anger and frustrations so many Americans have about higher gas prices.”

Congress’s proposed “solutions” to the energy and food mess they’ve created include a windfall profits tax on oil companies, a gasoline tax holiday for the summer, increases in the food stamp program and foreign food aid.

These measures will not solve the problem but will create new problems.

Americans are rightfully angry about higher energy and food prices but their anger should be directed toward the true villains — the Congress and the White House.

Walter E. Williams is a professor of economics at George Mason University in Fairfax, Virginia. He has authored more than 150 publications, including many in scholarly journals, and has frequently given expert testimony before Congressional committees on public policy issues ranging from labor policy to taxation and spending.