Add Nobel laureate Joseph Stiglitz to the list of those who somehow think the economy just hasn't had enough stimulus from Washington. Writing in the Financial Times Monday, Mr. Stiglitz argued that if only the federal government had spent more, unemployment numbers would be a lot lower and the economic growth rates would be a lot higher.
This is doubling down on a failed idea. Without the $840 billion stimulus, the public debt burden would be that much lower today. A significant reduction in regulatory burden, on the other hand, would do far more to push the economy toward the kind of growth rates seen in past economic recoveries.
The last recession and recovery similar to the one we are experiencing was in the 1980s, under President Reagan. The difference is the economy climbed 6.8 percent in the second year of that recovery under the Gipper. Under President Obama, the growth rate has been 1.7 percent, and the prediction for 2012 isn't looking much better.
That mediocre performance wasn't caused by a lack of spending at the federal level. The Congressional Budget Office just announced that the deficit for the current year is expected to be $1.2 trillion, not exactly a signal that Congress has suddenly become stingy. The Federal Reserve is also sticking with a policy of low interest rates after two rounds of quantitative easing to increase the money supply floating around the economy.
John Taylor of Stanford University has demonstrated why the stimulus simply didn't work. Instead of rushing out to spend their tax-credit windfalls, consumers saved. States either paid off their debts or cut back their spending. There were embarrassingly few "shovel-ready" projects. There is no reason to believe that a new stimulus would lead to a different result.
The White House nonetheless continues with policies that discourage economic activity and growth. A new study by the Heritage Foundation finds that the Obama administration completed 3,611 new rule-makings in 2011. Of those, the General Accountability Office classified 79 as having an economic impact of at least $100 million annually. Just five of those major actions reduced regulatory burdens, while 32 increased them, which the Heritage study defined as "imposing new limits or mandates on private-sector activity." That's the opposite of what our economy needs.
What is even more troubling is that the big hits are yet to come as more provisions of the Dodd-Frank Wall Street regulation bill and Obamacare come online. The Supreme Court is getting ready to hear arguments on the constitutionality of the president's health care takeover. No matter the outcome, some of the damage has been done already. States like Colorado are beginning to put resources into setting up exchanges in anticipation of its implementation. Those sunk costs can never be recovered.
Businesses know more regulations are on the way. For them, the uncertainty about the extent and cost is yet another reason to hold off on investing and hiring. The increasing regulatory burden is holding back the U.S. economy. Taking on more debt for another stimulus destined to fail is not the answer. Freeing the private sector is.
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