Dodd-Frank: The economic case for repeal

Article Highlights

  • It’s rare that one law can have a significant adverse effect on the economy, but there has never been anything like Dodd-Frank.

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  • Once it was assured Dodd-Frank would become law, GDP growth in the 3rd quarter of 2010 began to slow.

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  • The U.S. economy had a few reasonably good quarters of recovery after the crisis, suggesting the economy was healing.

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It is rare that a single law can have a significant adverse effect on the enormous U.S. economy. But there has never been anything like the Dodd-Frank Act. Signed into law by President Obama on July 21, 2010, its extraordinary effect in slowing the economy is coming into focus as its second anniversary approaches.

As shown in the chart below, the U.S. economy had a few reasonably good quarters of recovery after the crisis, particularly the third and fourth quarters of 2009 and the first quarter of 2010. These were not of Reagan quality, of course, but they suggested that the economy was beginning to heal.

On June 30, 2010, however, the Democrat-controlled House voted along party lines to adopt the House version of Dodd-Frank. That was expected, of course, but two weeks later two Republican Senators—Scott Brown of Massachusetts and Olympia Snowe of Maine—announced they would vote for cloture in the Senate. These two votes virtually assured that the bill would pass the Senate and eventually become law. Almost immediately, GDP growth in the third quarter of 2010 began to slow. It has never recovered.

Read the full article at The American

Peter J. Wallison is the Arthur F. Burns Fellow in Financial Policy Studies at the American Enterprise Institute.

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