Will Congress Prolong Economic Downturn?

Rob Bluey / April 04, 2008

American businesses shed 80,000 jobs in March and 232,000 jobs in the first quarter of 2008, confirming that economy ground to a halt in the first quarter of 2008. The unemployment rate rose to 5.1% — the first time it climbed above 5% since September 2005 — although that’s still lower than the average unemployment rate for the 1970s, 1980s and 1990s. Heritage’s Rea Hederman offered his analysis on CNBC today:
[youtube]http://www.youtube.com/watch?v=Lbj1HyguMuc[/youtube]

The bad news is already prompting new calls for action from Capitol Hill. “Democrats are focused on the issues that concern Americans. We are working to address the housing crisis, as well as other economic issues that this Administration has ignored for seven years,” said House Majority Leader Steny Hoyer (D-Md.). “Throughout this year, Democrats will continue to examine responsible policy options to turn this economy around.”

However, as we have repeatedly emphasized, the urge to “do something” isn’t the best policy prescription for lawmakers. Hederman and James Sherk argue in a new Heritage paper:

Congress should not react to the softening economy and the pressure to “do something” by passing expensive but ineffective stimulus measures that will do little to help the economy. Because the government does not create wealth, but only transfers it, Congress has limited power to stimulate the economy.

Now, if only Congress would listen. Propping up a bubble by increasing regulation and meddling with the housing market can only make things worse. Lawmakers should instead base their actions on economic principles that lead to strong long-term economic growth.