Bernie Sanders and dozens of co-sponsors intend to propose an Amendment to the financial regulatory reform bill tomorrow that would allow for a public audit of the Federal Reserve.  We are coming out, today, in support of such an amendment, recognizing that it is important to protect the American people and Wall Street itself from further economic recessions caused by speculative or hyper inflated trading.  As you see below, the Federal Reserve has typically manipulated interest rates to excessive degrees and caused excessive growth that was unparalleled by other indicators.  The excessive growth led directly to a collapse in the American economy that was sparked by the weak fundamentals of the economy matched up with unyielding consumerism and investment.  And afterwards, the Fed, in a typically corrective way, began to lower interest rates as rapidly as ever, again unreasonably inflating consumer spending and economic growth.  The Fed has used its liberty as an independent government agency generally outside the public eye to mess with monetary policy to make insiders of the industry money and reward speculative trading and risky derivative trading at the cost of the nation’s populace and its economic health.  The trends reached their peak under Alan Greenspan but they continue under Bernanke and the only way to truly put an end to the abuses is to audit the Federal Reserve and make it responsible to the American people.

As the oil spill in the Gulf of Mexico continues to dominate many headlines related to the environment, it is clearly a stark reminder of the negative repercussions of offshore drilling.  While offshore drilling my seem appealing at first glance as a way of tapping into much needed oil reserves, the reality presents a different story.  Many, including current President Obama have claimed that the environmental issues with offshore drilling have been solved.  However, the ongoing spill near Louisiana is getting out of hand and could be getting worse than the infamous Exxon-Valdez spill.  Hundreds of thousands of shrimp and other wildlife were devastated by the oil spill but more importantly it was beginning to approach the Louisiana coast as it was over 5 times as big as previously estimated.  Again Louisiana is being threatened with a natural disaster that harms the surrounding area, quality of water, quality of food and ultimately quality of life.  The money that such oil spills cost are significant and are not worth the use of offshore oil drilling.  While the notion seems favorable at first glance, the rare but devastating spills are enough reason to pursue other means of attaining access to energy.  Investment in alternative forms is perhaps the most advanced and progressive way to address the issue without costing localities like New Orleans, states like Louisiana, Federal Governments and the surrounding wildlife.

In his speech in New York City, President Obama fervently defended the financial regulation bill his administration is pushing in the Senate, hoping to build some much needed momentum behind the effort. However, while defending the bill, he didn’t villify Wall Street and instead welcomed their support for the bill, insisting that it is better for both them and the country as a whole. In many ways this take is accurate in that their failures over the past year will be avoided. However, with the rhetoric comes a weaker financial reform bill. Obama backed off of his initial support of an independent Consumer Financial Protection Agency. He also made few mentions of how detached it would be from the agency it is part of, a critical element in defining the strength of a subservient CFPA. In the end, Obama did come out strong for the Volcker Rule, but did not go beyond it, trying to de-emphasize the necessary but restrictive nature of such laws. As such, he sounded weaker on Derivative regulation indicating that he would not actively pursue much beyond what the Senate bill currently offers. While he gave an avid defense of the current reforms, Obama’s acceptance of the banks as partners indicated he isn’t very likely to pursue further, and stronger reforms.

Perhaps the most commonly referred to “evidence” that higher tax rates decrease revenue and growth is the Laffer Curve.  While generally used to skew general perception in favor of lower, taxes that are more regressive, the curve is truly indeterminate and has no backing when examined scientifically.  Many point to the notion that people decrease savings and investment and report lower incomes when they are taxed higher.   However, there is no empirical data to support the conclusion that a 100% tax rate would result in a complete lack of investment.  The few times where there have been such exorbitantly high tax rates in the Soviet Union and other communist nations, productivity has in fact continued at high rates and the government has still generated substantial revenue.  While the general notion that people will be less willing to work when taxes are incredibly high makes sense and is reasonable, income is not the ONLY incentive to work and government can manipulate distribution of welfare or other non-monetary rewards to maintain productivity with high tax rates.  Therefore the Laffer Curve everyone throws around is fundamentally flawed in its assumption that at 100 percent tax rates there will be no tax revenue generated for the government. Aside from that the x-axis relies on a flat tax and thus scientific data cannot point to where tax revenue peaks.  We took to redesigning the Laffer curve by isolating tax brackets across the world’s largest economies.  Take a look at a graph of the effective tax rate for the top 1 percent of earners across 20 of nations in the OECD, what we examined for Part 1 of this series.

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