Wednesday, May 23, 2012

Why the recovery has failed

Harvey Golub, former CEO of American Express explains why the recovery from the recession has been one of the weakest recoveries in the past 60 years. And the blame goes to the Obama administration. The Fed has been doing its bit with extremely low interest rates, but that has mostly gone to let the government borrow money more cheaply or for homeowners to refinance at the lower rates. Large banks have also benefited. But the low rates have not led to businesses expanding or more consumer purchasing. That's because of the Democrats' fiscal policy.
Fiscal policy, under the control of the president and his party, increased expenditures by about $700 billion per year since 2008 and launched a spending package of about $800 billion (along with various "targeted" temporary tax reductions), all of which resulted in an increase in national debt of over $5 trillion. In other words, we borrowed $5 trillion, for which we will pay interest for who knows how long, in order to stimulate the economy now.

There's little doubt that this level of spending—$5 trillion in an economy with an annual GDP of about $15 trillion—has a temporary stimulative effect. The question is, was it a good investment? For the most part the money was spent poorly and we will get very little future value from it. Billions were spent to reward favored constituencies like government employees and the auto industry. Billions more were spent on training programs that don't work and unemployment insurance that reduces incentives to actually find work. Little went toward building infrastructure or other assets that will help the nation create wealth over time.

So, yes, we are going in the right direction—but far too slowly to create reasonable economic growth and needed jobs. By their very nature, recoveries involve people and businesses making investments and spending money and borrowing to do both. However, for rational people to spend or invest requires confidence in the future. The "animal spirits" so necessary for a true recovery have been dampened by this administration's policies and rhetoric.

Indeed, this administration has been overtly hostile to business across the economy except for progressive favorites like electric cars or wind and solar power. It has tightened regulatory screws on the coal industry and all other fossil-fuel providers, enacted health-care "reform" based on false estimates of its likely costs and effects, unleashed a hostile National Labor Relations Board on businesses, and passed financial regulations in the form of Dodd-Frank along with hundreds of other regulatory actions that put increased burdens on the private sector. Meanwhile, the president has yet to pass a budget or announce a plan to rein in government expenditures.
Why would careful business owners care to expand in this uncertain environment. Add in the fears of taxmageddon to hit in January, 2013 and you have the exactly wrong environment to encourage economic growth. But Obama is either so clueless or indifferent that he prefers continuing his failed policies rather than admitting his mistakes.

And this isn't even counting the fiscal problems we're facing with funding programs in the future. All of these looming crises are ignored by the President as he pursues his demagogic attacks hoping to paste together a winning coalition. Our only hope is for change.