Perhaps it shouldn’t be surprising that an administration whose mantra is “hope and change” is arguing for economic policies that are a triumph of hope over experience. After two years of Keynesian pump-priming “stimulus” and temporary measures such as cash-for-clunkers and a one-year reduction in payroll taxes, economic growth and employment statistics have slowed dramatically. Yet liberals in politics and media want to respond to the utter failure of these policies by repeating them.
From the middle of last week to the middle of this week, the stock market fell six days in a row for the first time in nearly a year. The market has been down five weeks in a row, which hadn’t happened since 2004; if the market is down modestly today, that would make a six-week losing streak, the first since 2002.
The yield on the benchmark U.S. government 10-year note is back under 3%, implying that investors see the risk of an economic slowdown as greater than the risk of inflation. (It also implies that the market has little or no worry about the current debt ceiling negotiations.) It’s the lowest yield since late last year.
Most dramatically, and most tangible to the American worker, last week’s May employment report showed job growth of 54,000 in the month, less than a third of the consensus. The unemployment rate ticked up to 9.1%, higher than the highest estimate in Bloomberg’s survey of economists, and a new high for 2011.
This is not supposed to be happening during a “recovery.”
The instructive chart atop this N.Y. Times Economix blog piece illustrates that in prior recessions the trajectory of the recovery was roughly a mirror image of the downturn. In other words, however many months it took to reach the trough in terms of job losses, it took roughly the same number of months to recover those jobs (or, more precisely, to reach the same number of employed in America.) The current “recovery,” if it can be called that, has in 12 months since the bottom of a 24-month drop recovered fewer than one-sixth of the jobs lost during that drop. In prior recoveries the economy had gained back about half of the jobs lost at a similar point in time. This is not a recovery; it’s the economic equivalent of Chinese Water Torture.
What additional evidence would a rational person need to see in order to conclude that existing policies are not the right medicine for our economy — or indeed that they are little more than economic snake oil?
How about the fact that Keynesian policies have always failed, from the Great Depression to George W. Bush’s 2001 temporary tax rebates, as explained by the Heritage Foundation?
And here’s more evidence: The unemployment rate in Germany has fallen to 7%, the lowest in the two decades during which records for a reunified Germany have been kept. This follows the German government’s passing a 2011 budget which slashed German government spending by nearly four percent from the prior year and made no change to their national income or sales tax rates. Now we have evidence that the opposite of our policies is working somewhere. German unemployment, which was famously stubbornly higher than ours, is now an incredible 2% lower as Germany cut spending and didn’t raise taxes.
The New York Times reports that “some Democrats, economists and financial market analysts are raising concerns that too much fiscal restraint this year and next could further undermine the recovery.” They proceed to quote a Tax Policy Center analyst who warns against “a deal that’s going to send the economy back into recession.” (Leave it to the Times to call a liberal group like the Tax Policy Center “centrist” to try to offer it credibility.)
How does one undermine something that is essentially not happening? How can liberals argue with a straight face that ending policies that have consistently failed to bring us out of recession would somehow risk recession?
Stimulus must fail because it simply represents a transfer of money from the private sector to the government that redistributes it inefficiently to the private sector, like the water that remains in a sponge after you squeeze it out. It is also a transfer from the future to the present — leaving just the economic hangover of higher tax bills without even the buzz of a nice glass of single malt. It’s a sort of reverse inheritance, transferring money from our children’s futures to us — or rather to the politically connected among us. It is not the magical creation of free money.
Entrepreneurs aren’t stupid. They realize that stimulus creates a larger future liability than current benefit, that every dollar they get now anticipates more than a dollar of taxes someday soon — and much more if they’re in an industry that the government of the moment decides to target. Short-term policies like Cash for Clunkers or a one-year reduction in payroll taxes fail for essentially the same reasons. As crazy as it must sound to liberals, businessmen actually think about the future.
Frustrating to those of us watching the Obama Administration’s feckless, naïve, real-world-experience-free economic policies is that common sense argues against almost all of them.
But even with no common sense, Democrats and their media allies are also determined to ignore experience that shows increasing government spending and implementing short-term “stimulus” in one form or another stimulate nothing but the growth of government.
Nevertheless, experience be damned, Democrats argue against “austere” budget cuts while the Administration considers another short-term payroll tax break.
Nurse: “Doctor, your patient is not responding to the medicine you prescribed.”
Doctor: “In that case, increase the dose!”
Nurse: “But Doctor, this dose already appears harmful.”
Doctor: “Nonsense, Nurse, mainline the stuff! I read about this in a book somewhere!”
Semi-conscious patient: (Groan)
Will Rogers is reputed to have said “if you find yourself in a deep hole, stop digging.” When it comes to economic policy, the Democrats still have their shovels out.