Here is an interesting article to consider Roger...
OUTSIDE THE BOX
Banking on Deregulation
What California can learn from Delaware.
BY PETE DU PONT
Wednesday, March 21, 2001 12:01 a.m. EST
The first rolling blackouts of California's long hot summer began on Monday. Renewed calls for more government regulation of electricity markets cannot be far behind, since it was supposedly deregulation that caused the problem in the first place.
It serves the interest of liberals favoring bigger government to disparage deregulation, for if it fails, government must step in to rescue the hapless victims whom the market has torn asunder; so government must grow and taxes must rise and regulations increase.
Having seen in California the damage false deregulation can do, when true deregulation succeeds it is important to understand why and how citizens benefited because of it.
Twenty years ago, while Ronald Reagan was settling into the White House and pushing the tax cut that would revolutionize the U.S. economy, the state of Delaware--where I was governor--was in the second year of a successful income-tax reduction, which had begun in 1980. On top of this supply-side program, in the spring of 1981 the state's bipartisan political leadership did an audacious thing: It deregulated the financial services industry. Legislated usury rates were repealed, bank taxes were lowered, and limits on credit-card fees were ended. Credit-card issuers were allowed to charge market rates for their services.
The populist left and Ralph Nader opposed the measure, arguing that higher interest rates would harm the poor and loan-sharking banks would ravage the economy; that bank taxes should be higher, not lower, and anyhow few banks would come and no jobs would materialize and the overall economy would suffer as a result. CBS and the New York Times ran negative stories about it as well. Count the letters for yourself, but to some people deregulation is a four-letter word.
So, 20 years later, who was right? Were the market optimists, who saw economic growth and opportunity resulting form the Financial Center Development Act, or was it the zero-sum pessimists, who predicted deregulation could not succeed and would be harmful to the people of Delaware?
The optimists won in a landslide. Twenty years later they are still winning.
Jobs--clean, well-paying, environmentally friendly jobs--increased, unemployment dropped, the economy boomed and diversified, and state revenues increased as well. In short, everybody won, except, of course, the Naderites, who look like fools.
As a result of the act, 35 credit-card banks set up shop in Delaware, most of them in Wilmington, revitalizing its urban center and dramatically changing its skyline as construction (and construction jobs) boomed.
The diversification of the economy was dramatic. Today 13% of the economy is based on manufacturing, down from 27% in 1980. At the time Delaware was dependant on the chemical and automobile industries; now banking is the state's leading employer. Before the act was passed, one Delawarean in 50 worked for a bank, now one out of 13 does. Twenty-seven thousand new banking jobs were created, a sixfold increase. With their multiplier effect of 1.6 (that is, for every 100 new banking jobs 60 additional jobs were created in construction, retailing and other industries), that amounted to 43,000 total new jobs in a state where 422,000 people are employed.
The new jobs pay well, too. The average salary is $35,000, adding $1.2 billion in personal income to the state's economy, or $1.8 billion when the multiplier effect is included. All 43,000 people must buy food, clothes, housing, and entertainment, make phone calls and buy cars, so the state's economy has grown substantially.
Of course, the state's income-tax collections went up as well. (Delaware has no sales tax.) Last year banking and banking-related people paid 5% of all the personal income taxes in the state.
The bank franchise tax, levied as a percentage of earnings, is a particularly interesting example of successful supply-side economics. The basic Delaware rate is 8.7%. But to attract larger banks and greater job opportunities, the Financial Center Development Act lowered that rate in steps after earnings exceeded $20 million, with earnings over $30 million taxed at only 2.7% (reduced further to 1.7% in 1997). Liberal opponents were outraged at this "giveaway" to the banks. But what banks? In 1981 Delaware had no banks earning $30 million, so the lower tax rate was in fact "giving away" nothing. Bank franchise taxes paid to the state rose to more than $100 million in 2000 from $2 million in 1980.
All of this is a record of individual opportunity, economic growth, and successful public policy that any community or state would kill for. And deregulation made it possible.
The pro-regulation pessimists are still outraged. Taxes are too low, they say. Credit is too easily available. According to the U.S. Public Interest Research Group, Delaware's policies have been a "race to the bottom." The bottom of what? People have more opportunities in jobs that pay well; there's no bottom there. Tax rates have gone down, but tax revenues have gone up. No bottom there either. The state's economy has diversified and grown. So let's see, just who were the losers? Umm, well, there are none.
The winners are all the people of the state who have a better life because of a policy of deregulation that was put in placed 20 years ago. The market works, and it keeps on working. Everyone is better for it.
Are you listening, California?
Mr. du Pont, a former governor of Delaware, is policy chairman of the Dallas-based National Center for Policy Analysis. His column appears Wednesdays.
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