More stim­u­lus?

Less reg­u­la­tion, not more spend­ing, leads to growth

The Washington Times Daily - - Opinion -

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 Dod­dFrank 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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