Consider the effect of President Obama’s economic policies: Middle-class income has shrunk; consumer confidence is at a 10-month low; corporate-profit growth is well below last year’s level; investment is down; and the employment rate climbed to 8.3 percent, with the largest-ever proportion of the long-term unemployed in their ranks. In the face of this, Federal Reserve Chairman Ben S. Bernanke gave a speech Friday in Jackson Hole, Wyo., where he signaled more stimulus could be on the way. Here we go again.
Further expansion of the monetary supply isn’t going to revive this sluggish economy. Big-government propaganda aside, there’s no reason to believe a third round of “quantitative easing” will be any more effective than the previous two. Running the money-printing presses on overtime won’t provide relief to struggling Americans.
A recent study by Gordon Green and John Coder of Sentier Research documented the decline in median household income since the start of the recession in December 2007. After accounting for inflation, the median household income dropped 2.6 percent during the 18 months of the recession, from $54,916 to $53,508. The really bad news is that the fall has been even steeper in the purported recovery, with that income shrinking to $50,964 in June 2012 — a 4.8 percent drop.
This decrease isn’t spread evenly. The hardest hit are those closer to retirement and the young, who saw their incomes fall 9.7 percent and 8.9 percent respectively. The only prospering demographic is senior citizens who enjoyed an increase of 6.5 percent. It is America’s young people policymakers need to worry about in an economy that offers few new opportunities. Burdened by student debt and unemployed or underemployed, they are watching their income shrink in the worst recovery in many decades.
The young need an expanded job market if they are to improve their lot. It’s not looking likely, as small businesses — the engine of growth and job creation — remain deeply pessimistic about the investment and regulatory climate. The Small Business Optimism Index reported the past three years have been the worst since the Index’s start in 1973, according to the National Federation of Independent Business. Investment spending by business dropped from 5.4 percent to 4.7 percent last quarter. Corporate-profit growth also slowed, rising at a derisory 0.5 percent rate, compared to 6.1 percent the previous year. None of this portends well for economic growth in the foreseeable future.
At most, expansive monetary policy might drive interest rates down even further — not that there is very much room. Interest rates that are even closer to zero will not only hurt savers, they will also tighten the availability of funds in the mortgage market as lenders demand ever more stringent conditions to make it worth their while to extend a loan. This in turn will damage the nascent recovery in the fragile housing market, making economic conditions worse.
Fiscal policy is the cause of many of America’s current economic problems, and monetary policy is not the right medicine for rejuvenating the sickly economy. Only correcting Washington’s addiction to spending will get the U.S. economy back on the path toward growth.
Nita Ghei is a contributing Opinion writer for The Washington Times.