Some Welcome Signs of Life From Private Sector

Grass somehow manages to grow up through small cracks in the sidewalk. Similarly, the American private sector somehow seems to be exerting itself despite the vast expansion of government by the Obama administration and congressional Democrats.

Case in point: The announcement last week by four oil companies--Chevron, ConocoPhillips, ExxonMobil and Shell--that they are setting up a $1 billion joint venture to design, build and operate a rapid-response system to contain offshore oil spills as deep as and deeper than BP's Deepwater Horizon disaster.

Their goal is a system that can start mobilizing within 24 hours of an oil spill. They hope to have it up and running within 18 months.

Democrats have some cause to complain that George W. Bush and congressional Republicans left them with a hot potato when, by using the reconciliation process to avoid a Senate filibuster, they made their now long-ago tax increases expire after this year.

I suppose one might ask why oil companies didn't do this before. But it seems a vivid contrast with the apparently hapless performance of the Mineral Management Service, recently renamed the Bureau of Ocean Energy Management, Regulation, and Enforcement, which seems to have sat on out-of-date response plans for years and that was not able to call in equipment and personnel to respond to the April 20 BP spill for weeks or months.

Journalists tend to assume that effective regulation of potentially hazardous products can come only from government. But industry-generated organizations can provide it as well.

Consider Underwriters Laboratories, founded in 1894, whose UL stickers come attached to regulator products. Or the Society of Automotive Engineers, founded in 1905, which sets standards for the automobile and other industries.

Government hasn't had to step in, because UL and SAE work well without them. Federal regulators couldn't plug the BP well. The oil companies' joint venture promises to be able to do so.

Another case in point, which is different and more diffuse: The "capital strike" I wrote about two weeks ago. In the wake of the uncertainty raised by the Obama Democrats' huge increase in regulations and pending and current increases in taxes, businesses are sitting on cash and not hiring, banks are buying Treasury bonds and not lending, investors are not investing and consumers aren't buying. The economy languishes.

The response here is coming from congressional Democrats alarmed by the prospect, anticipated with relish for years now by so many of their colleagues, of the rise in taxes on high earners next year as the 2001 and 2003 Bush tax cuts expire.

Whoa! is the response from Sens. Kent Conrad, Evan Bayh and Ben Nelson. Maybe we shouldn't raise taxes when the economy is languishing. They now say they won't back such an increase.

In this they are following in the footsteps of John Maynard Keynes, who never would have approved tax increases in a lagging economy. And of White House Council of Economics Advisors Chairman Christina Romer who, with her husband David Romer, also a respected academic economist, surveyed tax changes since World War II and concluded, "Tax increases are highly contractionary. The effects are strongly significant, highly robust, and much larger than those using broader measures of tax changes."

Democrats have some cause to complain that George W. Bush and congressional Republicans left them with a hot potato when, by using the reconciliation process to avoid a Senate filibuster, they made their now long-ago tax increases expire after this year.

The Democratic plan has been to continue the tax cuts on people with incomes under $250,000 and to allow cuts above that benchmark to expire. That way they could depict Republicans as aider and abettors of the greedy rich.

But the defection of Conrad, chairman of the Senate Budget Committee, and at least two Democratic colleagues raises the possibility that even in a lame duck session after the November election Senate Democrats won't be able to get 60 votes for their plan.

In that case they will presumably have to compromise with at least some Republicans to preserve popular Bush tax features like the child care tax credit and the 10 percent low-income bracket. Otherwise taxes will go up on even middle- and low-income people just at a time when Keynesian economists say they shouldn't. This is not a bind the Democrats expected to be in.

Two lessons seem apparent here. One is that private firms can do things government regulators can't do. The other is that if you choke the golden goose enough, it stops producing eggs--and you have to get your hands off its neck. Grass grows up in the smallest cracks.

Michael Barone is a resident fellow at AEI.

Photo credit: iStockphoto/Kemie

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