Amity Shlaes uncovers a lesser known anti-business move by the Obama administration, begins the long process of rediscovering Warren G. Harding's greatness, and upholds the sanctity of contracts in her Bloomberg column.
At issue: the president's unheralded pocket veto of the unheralded Interstate Recognition of Notarizations Act, which would have required courts to recognize notarized documents signed in other states.
There are good reasons to object to IRNA, but the administration managed to find the bad one. According to White House spokesman Robert Gibbs, Obama wants to increase the paperwork headaches involved in foreclosing on bad borrowers, and says the bill could create "unintended consequences on consumer protections."
Shlaes takes the wayback machine to the 1920s, and shows how prosperity presidents steer clear of the high-handed approach to contract law the Bush and Obama administrations have taken:
Harding well understood the importance of stability for commerce and contracts. In his inaugural address, Harding promised the country a predictable environment for business deals in language far different from the current political discourse: "Any wild experiment," Harding warned, "will only add to the confusion."
There was no "change" in the Harding plan. "Our best assurance," he said, "lies in efficient administration of the current system."
Once president, Coolidge repeatedly made sure that contracts and property were honored. Coolidge did this first of all by keeping government out of the way and curtailing government expansion. His favorite vehicle for blocking Congressional plots was the one that President Obama used: the pocket veto, when a president vetoes legislation by allowing it to go into a Congressional recess unsigned.
Coolidge likewise denied bailouts when he could, sometimes in a manner that would appall today. The Greece of those days was Germany, which had been forced into a horrendously unrealistic reparations contract: the Versailles Treaty. Germany's terms were rewritten, but Coolidge was skeptical.
As Time magazine reported, Coolidge said of the agonizing Germans: "They hired the money, didn't they?" Time commented: "He did not want the U.S. taxpayer to cover German reparations." Banks failed routinely in the 1920s, and by the thousands. As for the dollar, the Fed and Treasury of those years protected it so well that Cole Porter included these lines in a famous song: "You're the top. You're an arrow collar. You're the top. You're a Coolidge dollar."
The result of this callous inhumanity was highly humane: The economy grew an average of more than 3 percent a year—4 percent or more under Coolidge. Unemployment fell below 5 percent and stayed there.
So, sure, contracts may be necessary casualties in recessions. Still, it's possible that ours has been a contracts recession.
Shlaes' big idea is that political uncertainty acts as a depressant on economic growth. While I suspect emotions-based economic theories eventually lead to the Keynesian cesspool, this is a case where the depressive effects are clear. Banks' internal investigations of paperwork screwups have already caused a de facto national foreclosure moratorium. The issue in foreclosuregate isn't that there was something wrong with notarized documents but that lenders and borrowers both may have failed in their due diligence. That's something a notary—who is just there to make sure of who is signing the documents—wouldn't catch. Notarization isn't a guarantee against fraud by the signers. Creating new uncertainty around signed contracts makes the mess harder to sort out and dishonors the brave notary publics who are risking their lives for our freedom.