The unemployment rate when President Obama took office last January was 7.6 percent and credit markets were in the throes of a global contagion. He immediately tasked Congress with passing a fiscal stimulus bill, and signed a $787 billion whopper in March.
Politicians rarely admit mistakes, especially big ones. Even so, Obama’s White House jobs summit on Thursday is just such an admission writ large. Stimulus 1.0 failed and now with unemployment having burst through 10 percent and climbing the President and the Congress are scrambling to cobble together Stimulus 2.0. The approach may differ from the previous failure, but if Congress legislates the policies floated so far, America’s unemployed should expect no help from Washington.
Washington repeatedly fails because it refuses to admit that almost without exception government actions do not increase employment on net. Only the private sector in pursuit of opportunity can create jobs on net. The best we can hope from government is that it keeps to a minimum the jobs it prevents and the income and wealth it destroys.
The good news is that recoveries happen and they happen because an economy that enjoys flexible markets and flexible prices adjusts. It adjusts in good times and in bad. It adjusts to whatever mistakes led to the recession. It adjusts to whatever damage is done during the recession. To get the unemployment much below 10 percent over the next year will require policies that help the economy to heal itself, to adjust more quickly.
Government can move the economy toward a strong enough growth rate to bring down unemployment first and foremost by improving the confidence of families and businesses in a prosperous future. In contrast, a review of Obama’s proposals and actions of Congress shows they uniformly sap confidence in the future:
- Obama proposed higher tax rates on small businesses and capital income.
- Massive new regulations and higher taxes as part of risky cap and trade scheme.
- Massive new taxes to pay for a hostile government takeover of our health care system.
- Massive and ongoing deficit spending, building a bridge of unsustainable near-term deficit spending to our unsustainable long-term entitlements spending.
In short, government plainly and manifestly just doesn’t get it.
If you’re a business today, coming out of deep recession, facing excess capacity and layoffs, do you take a big risk? Do you invest for the future or do you hunker down? Facing this government and its policies, is your goal for now to compete and win, or just to survive?
If the President wants the economy to create more employees today, then he has to stop threatening the employers with taxes, red tape, and a bleak future. Sadly, doing nothing is a powerful policy substitute for doing great harm.
But government can do more to create a positive atmosphere of confidence in the future, beginning with slashing spending to get the deficit under control. Specifically:
- Stop increasing discretionary spending by 8% annually;
- Take back unspent stimulus and TARP money;
- Enact spending caps, forcing lawmakers to prioritize; and
- Add the creation of a Bipartisan Entitlement Commission along the lines of the Wolf-Cooper SAFE Act to the upcoming debt limit vote.
In addition, Obama could embrace free trade as a boon to economic growth as did President Clinton, beginning by demanding the Senate pass the three pending free trade agreements.
Finally, the President could jettison the hyper-leftist approach embodied in the Senate and House health care deform bills and focus on bi-partisan, effective solutions to rising costs and inadequate access.
The economy will recover, but it will do so more quickly if Obama calls a time out to his frightening policies and government stops being a hindrance. The key to recovery is confidence. Right now, businesses and families have every reason to doubt. Replace doubt with hope, and the jobs will come.