- - Thursday, September 22, 2011

In looking ahead to next year’s elections, nothing is more essential for conservatives than making the case that welfare-state regulation does not work and why it doesn’t work. That way, if Republicans do prevail in the 2012 elections, at least they may have some idea about what to do.

President Obama has shown devotion to the use of government power to force good results on America. Thus an unprecedented $4 trillion in deficits, $2 trillion in the Federal Reserve System’s asset purchases, $1 trillion in stimulus, nationalization of the auto and insurance businesses, historic bank, securities, environmental and consumer regulations and a “transformational” regulation of the one-sixth of the economy that is health care. In other words, according to the power boys, government would fix it all.

All that power produced the weakest recovery ever. After two years of hyper-regulation and spending, 9.1 percent of the workforce remains unemployed, 16 percent if you include those who have given up looking for jobs. The economy is growing at an annual rate of less than 1 percent, the inflation rate is increasing, the dollar declines in value and gold shoots up 20 percent. Nothing has worked.

The president finally has promised a lighter regulatory touch, but he does not get it. He did delay a $1 trillion ozone rule, but his director of the Environmental Protection Agency said she would only “review” it and then proposed stringent air-pollution regulations that could shut down much of the coal industry, at a direct cost of $11 billion.


His new economics czar is best known as a union-justifying academic and author of the autoworkers’ clunkers program and Build America Bonds for construction unions. AT&T’s merger with T-Mobile was challenged for violating antitrust regulations. A TransCanada pipeline promising $20 billion and 13,000 jobs was ordered to get approval from eight additional regulatory agencies even after a review found “no significant impacts” on the environment.

Why? These folks are captured by the old dogma of welfare-state Keynesianism and know no other way. As Harvard economist Robert Barro noted, “In true Keynesian spirit, Agriculture Secretary Tom Vilsack said recently that food stamps were an ‘economic stimulus’ and that ‘every dollar of benefits generates $1.84 in the economy in terms of academic activity.’ What few know is that there is no meaningful theoretical or empirical support for the Keynesian position.” In fact, “there is zero evidence that deficit-financed transfers raise the [gross domestic product] and employment — not to mention evidence for a multiplier of two.” In fact, the 2009 extension of unemployment benefits to 99 weeks increased long-term unemployment from 26 percent in the 1982 recession to 46 percent today.

The media follow along. On an NPR broadcast, Politico’s senior economics reporter called Hurricane Irene an opportunity to create jobs because construction workers would be needed to make necessary repairs. Under this logic, a truly massive hurricane, a devastating earthquake or a nuclear war with Russia would be even better economically.

President Carter likewise tried every old trick. But by 1982, stocks had lost two-thirds of their value since 1967, unemployment exceeded 10 percent, inflation shot to 13 percent, and mortgage rates were at 20 percent. Keynesian prophet Paul Samuelson predicted in his Newsweek column that it would take “five to ten years of austerity” to grow out of 9 percent unemployment and 1 percent to 2 percent growth. Yet by 1983, growth was soaring at 5 percent annually and heading toward 7 percent, unemployment dropped, and inflation was down to 4 percent. A program described as “voodoo” by the power believers — a program of cutting taxes, regulation and domestic government spending, strengthening the dollar and deregulating markets — produced a 20-year economic recovery.

The power boys, starting with his own political party, knew better and reversed Ronald Reagan’s deregulatory agenda, bumbling through until hitting the reality of the 2008 collapse with no solutions. Forget about governing. What failed is an idea, and only an idea can rescue us now. The opposition’s job is to show why the old idea failed and why Reagan’s worked. The GOP smart guys have denigrated the House’s planned week-by-week detailed exposure of the regulatory collapse, starting this week and proceeding 11 weeks to the end of the year. Again, nothing is more vital than making the case that welfare-state regulation does not work and why, if only so that if Republicans do well in the 2012 elections they may have some idea what to do next.

Donald Devine was director of the U.S. Office of Personnel Management under President Reagan and is the editor of ConservativeBattleline Online.