The president’s budget will be released Wednesday, and he’ll call for more spending. What is it about economics this White House does not understand? All it does better than anyone else is splurge. We’ve had the $1 trillion stimulus package, Obamacare, bailouts, “Cash for Clunkers,” and green-energy “investments” — and none has reduced unemployment or improved the economy.
The jobless remain despondent. Why wouldn’t they? The labor-force participation rate hit a low not seen since the late 1970s. Last week’s employment figures were so dismal they were described as a “punch to the gut” by Austan Goolsbee, President Obama’s former economic adviser.
Amid this grim backdrop, Mr. Obama stood at the Port of Miami on Friday to demand another $21 billion in “shovel-ready” spending. “There are few more important things we can do to create jobs right now and strengthen our economy over the long haul than rebuilding the infrastructure that powers our businesses and our economy — our roads, our bridges, our schools and our ports, like this one.” The $1 trillion stimulus was important, all right. It was a $1 trillion flop. There’s no reason to think a $21 billion mini-stimulus would be anything more than a $21 billion mini-flop.
But history reveals an alternative that actually works. In 1946, with millions of Americans coming home from World War II, the government scaled itself back as never before. Unnecessary projects were terminated, and price controls were erased. Congress slashed spending for three straight years; 1946 and 1947 saw consecutive 40 percent budget cuts. This would be the equivalent today of a one-year spending reduction of $1.4 trillion. That would be enough to balance the budget.
At the time, however, Keynesian economists warned the cuts would create the “Depression of ’46.” The record shows how wrong they were. The private sector grew by nearly 30 percent. By 1947, the government was paying back wartime debts and running a surplus. A year later, the federal leviathan was a third the size it had been at the wartime peak, yet unemployment remained at the enviable rate of less than 4.5 percent, despite the millions of soldiers leaving the federal payroll for private jobs. Private-sector employment, household consumption, business investment and net exports all grew as government spending diminished.
This demonstrates how the White House has it backwards now. Government spending crowds out private investment, which makes economic conditions worse, not better. So long as the government stands in the way, recovery is impossible. That’s why the administration’s relentless efforts to expand federal payrolls have failed so miserably.
The president’s previous budget was dead on arrival, as even Democrats ran from it as fast as they could. For everybody’s economic health, Congress must reject the president’s latest spending blowout scheme.
The Washington Times
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