Stim­u­lus disas­ter: U.S. econ­omy’s cry for help

The Washington Times Weekly - - Commentary -

With a flam­boy­ant down­grade of the out­look for eco­nomic growth, jobs and prof­its, the June 1 280-point Dow plunge to launch the so-called June stock swoon is a warn­ing shot across the bow.

The Dow tanked along­side a batch of dis­mal eco­nomic data. The ISM man­u­fac­tur­ing in­dex, ADP em­ploy­ment, Case-Shiller home prices and con­sumer con­fi­dence are all point­ing to 2 per­cent growth or less, rather than the kind of 5 per­cent growth we ought to be get­ting com­ing out of a deep re­ces­sion.

The econ­omy now looks like a Gov­ern­ment Mo­tors en­gine that’s stalling out. Or per­haps, with en­ergy and food in­fla­tion, and hous­ing de­fla­tion at the same time, the econ­omy is acting like a pin­ball ma­chine on per­ma­nent tilt.

There’s a key mes­sage here: Big-gov­ern­ment stim­u­lus never works.

First there was the mas­sive Barack Obama stim­u­lus spend­ing. Then QE1. And now QE2 is wind­ing down. And what did we get for all this? Slower growth over­all, pal­try job cre­ation, more en­ergy and com­modi­ties in­fla­tion, con­tin­ued hous­ing de­fla­tion, and vir­tu­ally no new busi­ness start-up en­trepreneur­ship.

We know the Obama spend­ing pack­age failed to cre­ate a 7 per­cent to 8 per­cent un­em­ploy­ment rate, as ad­ver­tised. And now we’re learn­ing that the Fed’s QE2 has ac­tu­ally done more harm than good.

All that money-print­ing stim­u­lus worked to de­pre­ci­ate the dol­lar and jack-up com­mod­ity prices, es­pe­cially oil and gaso­line, but also food. So both com­pa­nies and con­sumers have been pun­ished.

Some de­mand-side bone­heads on Wall Street want the Fed to move to QE3, al­legedly to fight a stalling econ­omy. But if the cen­tral bank prints an­other $600 bil­lion or so, all that will do is sink the green­back an­other 10 per­cent and drive oil and gaso­line prices higher and higher. And that, in turn, will slow busi­ness and con­sumers even more.

The Ja­panese disas­ter is un­doubt­edly play­ing a role in the man­u­fac­tur­ing slump, prob­a­bly a big­ger role than most econ­o­mists pre­dicted. Pro­duc­tion sup­plies are scarce or nonex­is­tent, es­pe­cially for au­tos and elec­tron­ics, but also for many other sec­tors of the econ­omy.

Then, of course, there’s all the bad weather: hur­ri­canes, tor­na­does and floods have de­pressed all kinds of eco­nomic ac­tiv­ity here at home.

There also are jit­ters about the on­go­ing saga in Greece. The po­ten­tial for a Greek bond de­fault and var­i­ous credit-agency down­grades are tak­ing a toll on stock mar­kets around the world.

But this whole boom-and­bust mon­e­tary pol­icy, with its bla­tant dis­re­gard for King Dol­lar, is a snare and a delu­sion. Sta­bi­lize the green­back by link­ing it to gold.

Then move to the sup­ply­side: Slash in­di­vid­ual and busi­ness tax bur­dens, roll back enor­mous reg­u­la­tory costs and stop the mer­ci­less threat of higher fu­ture taxes.

If there was a se­ri­ous progrowth move­ment in Wash­ing­ton to ac­cel­er­ate tax-re­form over­haul and pin-back reg­u­la­tory bar­ri­ers like the Na­tional La­bor Re­la­tions Board war with Boe­ing, the EPA war against en­ergy and the Oba­macare threats that are too nu­mer­ous to count, that just might re­vive the an­i­mal spir­its.

But what we know for sure is that small busi­nesses are barely hir­ing to­day, and that brand new star­tups are few and far be­tween.

What’s lack­ing here is con­fi­dence.

No, we’re not go­ing into a dou­ble-dip re­ces­sion. The most im­por­tant in­di­ca­tor is the Trea­sury yield curve, which is still very steeply sloped. And busi­nesses are prof­itable. Those prof­its have been the back­bone of what lit­tle growth we’ve had in the last two years. And they’re the mother’s milk of the stock mar­ket.

But the point is, with­out real growth poli­cies, there’s not much to cheer about in the mar­ket or the econ­omy. We’re mud­dling along. It could even be called a growth re­ces­sion.

The 280-point Dow drop is cry for help. Is any­body lis­ten­ing?

Larry Kud­low, Na­tional Re­view On­line’s Eco­nom­ics Edi­tor, is host of CNBC’s “The Kud­low Re­port” and au­thor of the daily web blog Kud­low’s Money Politic$.

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