Sluggish growth is the long-term new normal for America
Well, it turns out Annie had it wrong. The sun won’t come out tomorrow. That was basically the message from Federal Reserve chair Janet Yellen last week when she acknowledged the economy is doing more poorly (again) than previously hoped. The Fed admitted that sluggish growth that caps out at 2 percent is with us for as far as the eye can see, or at least through the next two years. Is this a declaration of the last rites for Obamanomics? It should be.Throw it in the dustbin of history alongside all the other failed liberal economic experiments.
The previously bullish Fed finally and openly acknowledged that sluggish growth is the long term new normal for America. Secular stagnation is here to stay. The growth rate has limped out of the 2008-09 recession at a 2 percent pace now for seven years. The Joint Economic Committee of Congress tells us a normal recovery gives us about 3.5 percent growth and the Reagan and JFK booms were closer to 4 percent. So the GDP today thanks to President Obama is about $2 to $3 trillion smaller than it should be. This is roughly the equivalent of losing the entire annual output of every business and worker in Michigan, Ohio and Indiana combined.
Instead of speeding up to recover all this lost ground, we’re decelerating. Growth was 1.4 percent in the 4th quarter of 2015. It was 0.8 percent in the first quarter of this year. The Fed now has downgraded growth now to less than 2 percent for the rest of 2016 — down from an original forecast of 2.4 percent. Ms. Yellen now is telling us that the chances of an interest rate hike this year before the election are close to zero. That certainly worked out well for Hillary who needs a growing economy to have any chance of winning in November.
No one is more surprised by this turn of events than Mr. Obama himself. The Obama economists have consistently overestimated growth for seven years now to the tune of $2 trillion accumulated lost growth (see figure.) Alas, they were drinking their own Kool-Aid.
All of this comes atop the lousy jobs report, the finding that 95 million Americans over the age of 16 aren’t working, and that still 40 million are on food stamps. The business sector is in especially worrisome shape with industrial production down 1.4 percent over the past year, investment slumping, and corporate profits flat lined.
The lesson of the Fed under Ben Bernanke and now Yellen is that easy money is no economic solution to this decade-long malaise. As economist Larry Kudlow puts it: “The Fed can print money, but it can’t create jobs.” Our central problem now is not with our monetary policies. It is severe regulatory and tax drag.
When I recently attended a meeting of the Trump Leadership Council in New York with dozens of industry leaders and CEOs, I was surprised to hear story after story of these major employers of how Washington regulations and mandates are suffocating their businesses. Their message to Donald Trump: “Please get government off of our back.”
All of this brings me to the Republicans. Why are they stone silent on the economy and jobs, and why are they beating up Mr. Trump rather than Hillary and Mr. Obama for their economic malpractice. Every poll over the last three years finds the economy and jobs are by far the biggest voter concern. In 2007 and 2008 when the role of the parties were reversed, House Speaker Nancy Pelosi sent a blizzard of legislation to the desk of George W. Bush which he either had to veto or put his tail through his legs and sign into law.
Where is the Republican tax cut? Where is the Republican regulatory freeze? Where is the Republican bill suspending the 50-worker rule under Obamacare or the 30-hour-a-week regulation that has forced millions of Americans into part-time jobs. Why haven’t they suspended the Clean Power Plant rules by the EPA that are putting coal miners out of work? House Speaker Paul Ryan has some wonderful policy ideas he is rolling out, but rather than talking about them, how about passing them?
Hillary’s growth agenda is to give America more of the same. Congressional Republicans seem to have no economic agenda at all — just white papers of what they will do in the future. But to quote George Allen, “The future is now.” Congressional Republicans like to blame Mr. Trump for their precarious political predicament and lousy poll numbers. Maybe they should look in the mirror. Stephen Moore, an economic consultant with Freedom Works, is the author of “Fueling Freedom: Exposing the Mad War on Energy” (Regnery, 2016).