Can Public Law Schools Deny Funding to Religious Groups that Discriminate on the Basis of Religion or Sexual Orientation?
Come hear Kim Colby of the Christian Legal Society (CLS) and Scott Ballenger of Latham & Watkins, who were both part of the litigation, speak about CLS v. Martinez. Professor Armacost and Professor Laycock will also offer remarks and take questions from the audience!
Question 1: How do you square rent seeking behaviors against in
Zywicki: Interchange fees are logical and came from market. Merchants bear the cost of interchange and consumers get debit cards essentially for free. If we change, consumers are going to have to be more for bank accounts, debit cards, etc. Some consumers will be driven out of the market and won't use debit cards. The unintended consequences could be huge: limits would only be on debit cards not credit cards when credit cards interchange fees are much higher. Thus, consumers would then lobby again to solve unintended consequences. This is the path of interventionism that leads to more and more intervention and regulation.
Questions 2: Does economic freedom lead to more political freedom?
Mahoney: It depends on how you define political freedom. Many places have competitive political elections, but we doubt their actual freedom (Russia for example). At least for economic freedom we can look at certain indicators like low inflation, low regulatory environment, ... For political freedom, the best indicator is how frequently a government leaves voluntarily when people/voters no longer want in power. It is difficult to say if one leads to the other.
Question 3: Why did TARP and the bailouts pass without more resistance?
Zywicki: Congress was extremely weak during financial crisis. Bush-Paulson were able to push theories of imperial executive and many Republicans and Democrats in Congress, and the Federalist Society, did not resist. The GM/Chrysler Bailout is an example of deferring to the President when Congress didn't want to be on record supporting or opposing it. Finally, Congress pushed back a little bit when Secretary Paulson demanded trillions for more bailouts. Furthermore, TARP money might have been blatantly illegal, but the Court never heard it.
Question 4: How will people react if implicit guarantee of banking system was explicit?
Zywicki: The independence of the banking system form the government is one good example of economic freedom. Cronyism in big banks and big government is a sign of regime corruption. An example of the problem was Fannie & Freddie: an example of an implicit guarantee from failing since government owned.
Mahoney: It is hard to guarantee the opposite of bailouts. A system where everyone knows that a bank will not bailed out is hard because Congress would need to resist threats of wrecking the economy from big banks. It is akin to a hostage situation and hard for lawmakers to resist and deal with effect on economy and voter backlash.
In a speech before lunch, John Allison, the retired Chairman and CEO of BB&T Bank, began by analyzing the causes and consequences of the recent financial crisis, but concluded with a broader discussion of political and personal philosophy. Mr. Allison served as chairman and CEO for almost twenty years and over that time BB&T rose to become the tenth largest bank in the nation. Over the course of that period, Mr. Allison and BB&T funded over sixty college programs and donated large amounts of money to universities in an effort to combat what Mr Allison described as an orthodox liberal economic theory that has permeated the education system. Each of these programs funded professors and university chairs that taught Objectivist, conservative and libertarian philosophies of limited government, low taxes, capitalism, and free markets with emphasis on the works of Adam Smith and Ayn Rand.
As far as the recent collapse, Mr. Allison identified four themes that influenced the actions of government and banks.
(1) Government policy of fixing problems through increased regulation and control - a mixed regulated economy that has become increasingly regulated in recent decades
(2) Policies creating a bubble in the real estate market
(3) Refusal to let businesses fail
(4) Doing anything for short term gain at the expensive of long term strength and stability
Mr. Allison identified the Federal Reserve and the broad regulatory system as the primary problem in the crisis. Since the monetary system was nationalized in 1913, the market has had less and less control over the dollar. In his opinion, the idea of integrating the economic activity of seven billion people worldwide is not sustainable or feasible. The Fed is not able to fix prices and avoid a crisis for a long period of time. Negative margins and inverse ratios in the market led to bad loans and increased risk. Identified as "the proximate cause" of the crisis, the government's housing policy and the belief that simply owning a home was a goo in itself led to huge problems. Personal incentives to be frugal, have discipline, and buy within one's means were lost in this fervor. Both conservatives and liberals recognized the lack of sustainability of Freddie Mac and Fannie Mae. Intelligent legislators ignored the high leverage ratios and the increasing debt the housing policy would inevitably cause in the market. Mr. Allison identfied Barnie Frank as an example of an intelligent legislator who understood the risk, but ignored based on a "religious" devotion to housing for all.
Furthermore, Mr. Allison identified President Lyndon Johnson's administration and the Great Society as pivotal historical point after the New Deal, but before Fannie & Freddie, that led to this system. LBJ wanted to fund the Vietnam War and the vast expansion of the welfare state, but did not want to do the politically unpopular thing, raise taxes on the American people. Thus, the programs were funded by printing money under the watch of The Federal Reserve and the Treasury. Professor Allison pointed to this decisions is a harbinger of the increased regulation of the monetary system, mortgage rates, and the real estate market. Once the government was in the market, private companies were unable to compete with their rates and guarantees. Since the purpose of banks is to enable people to invest for longer periods of time by buying short and selling long. The Fed, the Treasury, and the FDIC's policies and intervention led to increased leverage ratios and unfair playing field. In the face of this controlled market, led to banks and accountants to make unnatural market decisions.
Moreover, Mr. Allison rejected that greed and avarice is a primary cause the collapse. He acknowledged that Wall Street is greedy, but not more so than at any other point in history. Policy and government regulation, he argued, is the true problem despite the political points won by attacking the wealthy on Wall Street. Mr. Allison also rejected the idea of "too big to fail." He points to AIG as an example of a huge and successful firm that might seem too big to fail, but that in reality was only one firm in the grand scheme of the system. In a more controversial point, Mr. Allison suggested that AIG's connections to Goldman Sachs, which has large personnel and financial connections to the FDIC, was a major basis for the FDIC's view that AIG was an irreplaceable player in the market. He added that BB&T would have been fine without AIG. Finally, Mr. Allison defended BB&T's acceptance of TARP funds despite his personal opposite to the program. The Fed and chairman Ben Bernanke's decision to change the credit ratio and effectively force all major banks to accept the funds left him with no choice in the matter. However, he wanted to emphasize BB&T paid back all loans with interest.
In the closing portion of his speech, Mr. Allison turned to philosophy and his vision of how to approach life and politics. He ejected John Maynard Keynes economic philosophy of "digging holes and filling them up" to arbitrarily keep the market moving. In lieu of Keynesianism, the government should keep taxes low and deregulate to allow producers to create jobs and invest in the market. Mr. Allison argued that not wealthy people are productive, but in general when taxes are lower the wealthy is more active in the market and increases overall investment. From a political standpoint, Mr. Allison advocated for reduced scale of government, lower taxes, free trade, a reduction in regulation and public companies.
On a personal level, Mr. Allison advocated three major points. First, pure altruism leads to redistribution of wealth and turns the nation into a society of unproductive parasites. Since each person has a right to his own life, Americans should return to the Jeffersonian vision of freedom of the individual to pursue his own life and interests. Second, the devotion to pragmatism can lead to short term gains at the expense of long term virtue and strength. Abandoning virtue and compromising for security and short term protection will not work in the long run. The best personal approach is pursuing long-terms self-interest under the "trader principle." This approach rewards rationality and self-discipline and results in long term success. Finally, the "free lunch" mentality is not sustainable or a path to a successful life. Mr. Allison reminds us that neither Presidential candidate in the 2008 Election proposed any tenable or serious solution to the welfare or medicare system.
Mr. Allison encouraged the students in the audience to follow his three great values: Purpose, Reason, and Self-esteem. Self-esteem, he argues, comes from an earned life and work that leads to a sustained joy. Short-term security is not a substitute for life on one's own terms. The speech received a standing ovation from the crowd of nearly 400 students, attorneys, and scholars. (For further reading on Mr. Allison's philosophical approach, see the works of Adam Smith, Ayn Rand, or Tara Smith.)