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This Time Is Not Different

Or so it seems.

12:00 AM, Jul 23, 2011 • By IRWIN M. STELZER
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Not to be outdone, the Environmental Protection Agency has announced plans to set more stringent air quality standards. If finalized, those regulations will have their greatest impact on manufacturing jobs. That is not meant to suggest that non-manufacturers such as bankers and non-bank lenders can heave a sigh of relief: President Obama last week nominated Richard Cordray to head the new Consumer Financial Protection Bureau to regulate credit card issuance, mortgage practices, and other financial transaction. Cordray, a former attorney general of the state of Ohio, much beloved by trial lawyers who contributed generously to his election campaign in Ohio, has promised to apply his expansive view of regulation to the 111 largest banks and a host of non-bank lenders such as prepaid card companies. Some of these companies indeed need heightened regulatory supervision, but Cordray’s critics say he is more an anti-business zealot than a judicious regulator.

All of this rattles businessmen. The latest survey of small business sentiment has fallen for four consecutive months and only 11 percent of small businesses expect to do much hiring. Bill Dunkelberg, chief economist of the Federation of Independent Small Businesses, tells the press, “Between the deluge of new regulations and a Washington policy agenda that is largely ignorant of Main Street needs, stubbornly low consumer spending, and grave concern … about the federal budget, there is not much to be optimistic about as a small-business-owner.” That pessimism is exacerbated by the continued difficulty many small businesses have in obtaining credit, another condition characteristic of post-financial-crises periods according to Reinhart and Rogoff.

That “stubbornly low” consumer spending is a result of the fact that consumer sentiment, as measured by the Reuters/University of Michigan survey, fell to a two-year low in July. That finding is reflected in other surveys, and in my own non-scientific sample of sentiment as I travelled last week from the East Coast to the Rocky Mountains.

Perhaps everyone will cheer up when the president and the Congress find a way to avoid default, even if the solution concocted merely does what every politician swears he will never do – kick the can down the road. But hold the applause for any plan to cut the deficit just as the economy is weakening. A new study by the International Monetary Fund finds that a 1 percent cut in a country’s deficit reduces real output by two-thirds of a percentage point and raises the unemployment rate by one-third of a percentage point. “Another year of recovery would help confidence more than a premature swing of the fiscal axe,” warns the Economist. That thought could throw a wet blanket over any Tea Party. 

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