Gools­bee heads for the hills

The Washington Times Weekly - - Editorials -

It can’t be easy serv­ing as chief eco­nomic ad­viser to Pres­i­dent Obama. The harder Aus­tan Gools­bee has worked to im­ple­ment the ad­min­is­tra­tion’s bor­row-and-spend phi­los­o­phy, the worse the econ­omy has be­come. No won­der Mr. Gools­bee wants to get out of town. If only he were more hon­est about it.

The un­em­ploy­ment rate has risen to 9.1 per­cent, and the econ­omy added a mere 54,000 jobs in the pri­vate sec­tor in May. Mr. Gools­bee tried to pass off as good news the mil­lion jobs added in the econ­omy in the past six months.

This is no cause for op­ti­mism when the un­em­ploy­ment rate is climb­ing and a record num­ber of Amer­i­cans have given up on find­ing a job.

As of May, the civil­ian-la­bor-force par­tic­i­pa­tion rate was at a his­tor­i­cally low 64.2 per­cent. This dis­mal statis­tic is pre­vent­ing un­em­ploy­ment num­bers from edg­ing into dou­ble-digit ter­ri­tory.

Mr. Gools­bee says the ad­min­is­tra­tion is com­mit­ted to “help the pri­vate sec­tor stand up and be the driver of re­cov­ery.” That would be cause for op­ti­mism — un­til you see the poli­cies be­ing ad­vo­cated.

The Obama ad­min­is­tra­tion is still push­ing schemes like an in­fra­struc­ture bank, more reg­u­la­tions and tax in­cen­tives to jump-start in­vest­ment in fa­vored por­tions of the pri­vate sec­tor. These stale, Wash­ing­ton-cen­tric ideas have never worked any­where they have been tried, but ivory-tower aca­demics like Mr. Gools­bee have noth­ing else in their bag of tricks.

The num­bers show that Amer­i­can busi­nesses are hold­ing back be­cause the ad­min­is­tra­tion’s reck­less poli­cies are fos­ter­ing eco­nomic un­cer­tainty.

Cor­po­rate prof­its were rea­son­ably healthy in the last quar­ter of 2010 at $36.9 bil­lion, though prof­its slowed in this past quar­ter to $21.9 bil­lion. At the same time, banks are awash in re­serves ($1.5 tril­lion in April) but they still aren’t lend­ing. The mar­ket is hold­ing back, and the re­sult is in­ad­e­quate job cre­ation.

Banks will not lend and firms will not hire when they think Wash­ing­ton is go­ing to change the rules of the game by im­pos­ing new reg­u­la­tions or hik­ing taxes.

Tem­po­rary gim­micks, like the pay­roll tax hol­i­day, don’t pro­vide enough of an in­cen­tive to un­der­take long-term in­vest­ment and hir­ing de­ci­sions. Tax in­cen­tives granted to fa­vored in­dus­tries won’t in­crease ef­fi­ciency in the econ­omy ei­ther, not to men­tion the dam­age they do to the rule of law and trust in in­sti­tu­tions.

There are far larger un­cer­tain­ties in the sys­tem that need to be re­solved to get the econ­omy back on a sta­ble growth path and cre­at­ing jobs.

The sin­gle big­gest un­cer­tainty is the stag­ger­ing $14.3 tril­lion in gov­ern­ment debt and ef­fect of a pos­si­ble down­grade of the U.S. credit rat­ing on in­ter­est rates.

As part of any debt-ceil­ing agree­ment, real spend­ing cuts must sig­nal that Congress and the pres­i­dent are se­ri­ous about slash­ing the size of gov­ern­ment and lim­it­ing in­ter­ven­tion in the mar­ket. Any­thing less will en­cour­age cap­i­tal flight, not the in­vest­ment the ad­min­is­tra­tion os­ten­si­bly is seek­ing.

The White House ought to take Mr. Gools­bee’s de­par­ture as an op­por­tu­nity to try some eco­nomic poli­cies that ac­tu­ally have proved to work.

Un­less Mr. Obama fi­nally gets se­ri­ous about deal­ing with long-term prob­lems with long-term so­lu­tions, Amer­ica won’t see long-term in­vest­ment or jobs — just long-term un­em­ploy­ment grow­ing.

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