Citizen Abuse

I should be focused on planting my summer garden. Instead, the Dodd-Frank Act, now nearly five years old, continues to pester me. 

I used to be a fan of the statute, but the complexities of implementation--matters like why an agency thinks it must take 200 words or more to put 5 words of Congress into action--have alienated me. 

Time and time again, though, what gets my goat is the misleading, incomplete information trade groups publish in their attempts to discredit this and other bills. The latest instance occurred yesterday, when the American Bankers Association touted an "analysis" released by the American Action Forum, a 501(c)(4) (tax-advantaged) organization that reportedly gives millions of dollars to conservative political candidates. The author projected that the Dodd-Frank Act would decrease U.S. Gross Domestic Product by $895 billion over the 2016 to 2025 period.

So I drafted this:

Garbage-In-Garbage-Out: Dodd-Frank DisAnalysis

The American Regeneration Institute (ARI) has released a report that seriously challenges the conclusions of recently announced analyses of the effects of the Dodd-Frank Act. According to the ARI, studies typically fail to consider benefits as well as costs, in the longstanding tradition of critics of environmental legislation, who generally ignore externalities and improvements to general welfare.

The ARI predicts that over the 2016-2025 period, Dodd-Frank changes will increase Gross Domestic Product by $895 billion, or $3,346 per person, not counting the moral and cultural benefits of increased economic stability. Curiously, this conclusion mirrors the conclusion of the American Action Forum (AAF), which predicted a decrease of $895 billion. Like the AAF, the ARI admitted its computations were subject to large uncertainties, but that the order of magnitude is instructive.

The ARI points out that estimates of the costs of the 2008 financial crisis range from $12.8 trillion (Better Markets) to more than $22 trillion (Government Accountability Office).  Using the more conservative figure, the ARI posits that the heightened regulatory standards and increased capitalization requirements imposed by Dodd-Frank have decreased the likelihood of a similar crisis during the 2016-2025 period from 25 percent to 12.5 percent, carrying an economic value of $1.6 trillion (.5 x .25 x 12.8 trillion).

Taking the AAF costs at face value, this results in net benefits of $705 billion.  The ARI added $100 billion in benefits anticipated from reduced policing expenses, litigation costs, and court administration expenses. It also included benefits of $95 billion attributable to the increase in financial institution services prompted by an improvement in consumer satisfaction with bank performance from 76 to 80 (American Customer Satisfaction Index).

Unlike many other research organizations, the ARI, based in Natural Bridge Station, Virginia, does not maintain 501(c)(4) status under the Internal Revenue Code, does not accept government subsidies and tax incentives, and does not contribute to political campaigns.

"Sounds serious," says Virginia.

Actually, it's all smoke and mirrors. The not-so-funny thing is people read this stuff and believe it.