The Phony Recovery

Guest Post by Daniel Wilson

With an election rolling around the corner, President Obama is out on the campaign trail touting himself as an economic savior for the homeland. Though, it’s hard to imagine how anybody could possibly run on an economic record as lousy as his own. After all, the majority of Americans still believe the economy is in a recession.

Technically, the recession ended in the second quarter of 2009, but the so-called recovery has been too weak to reverse much of the catastrophic damage done to the average household during the recent economic collapse. For example, since the alleged recovery began real gross domestic product growth has averaged an anemic 2.4 percent, with 1.9 percent for the first quarter of 2012.

Given the depth of the economic contraction from the financial crisis, economists would expect a much larger rebound in growth rates. Historical evidence compiled by many economists, including Milton Friedman, clearly shows that deep economic downturns are followed by rapid expansions. For instance, at this same point in the 1980s recovery following  the deep contraction at the start of the decade, GDP growth averaged a much more robust rate of 6 percent.

What about on the jobs front? The picture remains the same, no real recovery to speak of. True, the private sector has added 4 .3 million jobs over the past 27 months, which is around 160,000 jobs a month. However, that’s hardly enough jobs to keep up with the growth in the labor force and private sector jobs are still 4.5 million below their 2008 peak. Hence, employment statistics continue to remain in the dumps.

For instance, the unemployment rate has been above 8 percent for over 40 consecutive months, the longest since the 1930s. The labor presentation rate has plummeted to multi-decade lows as millions of discouraged workers have stopped looking for work and are no longer part of the official unemployment rate. In fact, if you calculate the unemployment rate using the same labor participation rate held on January 2009, the unemployment rate would be 10.9 percent.

So what’s holding back the economy? John Taylor, a prominent economist from Stanford University, believes the current administration is most to blame through their interventionist economic policies. Taylor argues that the increased regulatory burden of government over the last few years, including but not limited to, Obama care,  Dodd- Frank, an overzealous EPA and NLRB, have stifled business expansion, causing resources to remain idle instead of being used in productive manners that foster job creation. To validate this view, a recent poll done by the Chamber of Commerce found that 74 percent of small businesses say that Obama Care makes it harder for their business to add employees. Another recent poll by Gallup found that the number one problem small businesses face is complying with government regulations. Just since 2008, the amount of federal workers employed in regulatory activities has increased by 20 percent.

Another blatant impediment to a genuine economic recovery is the profligate spending in Washington D.C. The increase in federal outlays since 2008 did not stimulate the economy, but rather sedated it. The more the government spends, the less the private sector can invest.  As Milton Friedman put it, a government taxes what it spends, so spending increases have the real effect of higher tax rates on the private sector. Since governments have no resources of their own, they have to obtain their fundings by robbing the private sector of its capital. That is, when governments spend money, whether through taxing, borrowing, or inflating they displace resources from the productive sector of our economy and squander it on wasteful projects, such as Solyndra.

A recovery built to last must come from the only productive part of our economy, which is the private sector, not the public sector. In order to allow the private economy to fire on all cylinders, producing a recovery strong enough to reverse the damage done from the recent financial meltdown, the federal government must remove its grip on the economy with large-scale cuts in spending and onerous regulations.

Daniel Wilson is a recent graduate of James Madison University and holds a degree in economics.

Leave a Reply

Your email address will not be published. Required fields are marked *