U.S. News columnist James Pethokoukis takes a look at Obama’s economic recovery plan and can see the same failed strategies tried by the US in the 30’s and Japan in the 90’s:
“The road ahead will be long. Our climb will be steep,” Obama said on election night. And there’s no doubt that many other countries plagued by imploded asset bubbles and resulting banking crises have suffered a long stretch of bad times. In Sweden, between 1990 and 1993, the economy shrank by 6 percent. Japan experienced a “lost decade” in the 1990s. Then, there was the 1990-91 recession here in America. Even after the economy started expanding again, the unemployment rate kept rising until it hit 7.8 percent in June of 1992 vs. a low of 5.2 percent in June 1990. So, certainly America is at risk for an extended case of the blues.
And that’s what is so frustratingly weird about Obamanomics and the plan for hundreds of billions, if not trillions, of dollars in “stimulus” spending. If the goal is to turn around the economy as quickly as possible, why would we turn to the same economic playbook that America ran in the 1930s and Japan in the 1990s? In both cases, massive government spending failed to bring back prosperity. And it’s unlikely to work this time, either. Economists Susan Woodward of UCLA and Robert Hall of MIT are dubious. In their cowritten blog, the duo opined that “timing may be a problem . . . Complicated projects take time to ramp up to high spending and employment levels. . . . All of these proposals for stimulating state and local spending suffer from a common problem—they will end up generating employment for highly specialized businesses and workers, rather than stimulating economic activity more broadly. A large-scale infrastructure program will drive up the profits of the limited number of firms.” That conclusion dovetails nicely with a 2005 study, “What Are the Effects of Fiscal Policy Shocks?” which looks at U.S. economy policy since 1955 and concludes that “a deficit-spending shock weakly stimulates the economy.”
What would work?
…a plan that creates confidence by enhancing the long-term rewards for working, saving, and investing. Take the 1980 Reagan tax cuts, for instance. As Arthur Laffer, Stephen Moore, and Peter Tanous point out in their new book, The End of Prosperity, the bulk of the Reagan reductions didn’t kick in until 1983, and they were somewhat offset by the 1982 corporate tax increases. But when the full weight of the tax cuts was felt, the economy took off like a rocket, rising 4.5 percent in 1983 and 7.2 percent in 1984. Imagine if the capital-gains tax were slashed immediately. The stock market would soar, automatically increasing the net worth of tens of millions of Americans.
But a plan such as that is blasphemy to a Socialist. And really…why would they want to fix the economy when even the new Chief of Staff, Rahm Emanuel, said just a month ago:
“You never want a serious crisis to go to waste. This crisis provides the opportunity for us to do things that you could not do before.”
Going to be a long four years.
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