The government is running out of things to do. I am referring to the economy and with reference to improving the economy. A successful government program to recover from the financial crisis and recession that the government caused is turning out to be much harder than presidential candidate Barack Obama promised.
All prolonged recessions and depressions are caused by governments. The recent financial crisis occurred, first, because the elaborate house of cards of government promises and guarantees that dominated the mortgage and housing markets was flattened by a puff of the wind of reality. With government reinforcement and in fact much prodding, builders were encouraged to build more houses bigger and faster than people could use them, realtors were rewarded for selling them, mortgage brokers were drawn to get mortgages for people who could not afford them, and investors were lured into thinking that there was no risk in pumping their money into funding these mortgages. Reality eventually took over, as it always does.
All of this would have caused a major recession, but former Treasury Secretary Hank Paulson ensured that the recession would turn into a full blown financial panic. Nearly every Sunday in the fall of 2008 Paulson was on national camera, little hiding his deer-in-the-headlights expression, announcing the latest desperate and ill-conceived Federal financial rescue program. Remember that the disastrous $700 billion Troubled Asset Relief Program (that was not used to purchase assets after all) was Paulson’s idea. The markets were spooked by it. Markets tanked when Congress defeated it and tanked again when Congress passed it about a week later (sweetened with enough pork to buy needed votes). Investors went on strike.
President Obama has been unsuccessful, coming up on three years, in ending the strike. In fact, each time investors have shown some interest in coming back some new government plan or program has renewed enough uncertainty to drive investors back to the sidelines. For example, in early 2009 bank stocks were starting to recover until the Administration decided to impose stress tests to see how banks would fair if the Obama recovery plan failed. Investors returned to their seats to watch, and even the regulators’ findings that the banks could weather continued recession did not bring more than a tepid response from bank investors. The Obama Administration’s plan to restructure the entire banking and financial system—realized in the Dodd-Frank Act—has served to warn investors against taking new investment risks until they could see how it would all play out. It now seems clear that the financial crisis has been replaced by a regulatory crisis, with the regulators already falling way behind the mandates of the last Congress to write hundreds of new rules and no bank able to make any business plans extending much beyond a few months.
The housing markets remain at depression levels. New Dodd-Frank rules are making it much harder for families to get, lenders to offer, and investors to fund new mortgages for new houses. Is an economic recovery even conceivable with housing and mortgage markets mired in depression?
Our government has tried pulling its other levers. The United States has never, ever, witnessed the amount of government spending intended to stimulate the economy artificially. The Federal Reserve has expanded the money supply by trillions of dollars. Most of that Federal Reserve money has gone into funding government deficits, driving down the value of the dollar, and stimulating the prices of gold, silver, oil, and other commodities. The government takeover of the healthcare system, it was argued, was the only way to control medical costs that were said to be harming the economy.
Of course, there are more government actions waiting in the wings. The Administration wants to raise taxes dramatically, especially on investors and businesses—the energy business, the banking industry, investment firms, anyone who uses carbon (one of the elements necessary to life and essential to breathing), “rich” people, and small businesses that would be caught in the definition of “rich people.”
And yet the economy remains in the doldrums. Nothing seems to work. It conjures up memories of the Great Depression, that economic recession that Franklin Roosevelt was eager to take over. Through the whole decade of the 1930s FDR tried one thing after another to restore economic recovery, but nothing worked. Instead, FDR helped weaken world faith in representative government, greatly encouraging the willingness of desperate people to embrace the desperate measures of the dictators in Italy, Germany, Japan, and the Soviet Union who gave us World War II.
The Obama Administration has tried everything that government can do. Why not now try getting government out of the way and letting the people solve this one as they always have? Investors still have plenty of money ready to invest, if they were only confident that the rules would not change and that their investments would not be taxed away. Businessmen would be eager to hire new employees if they only knew how much the employees would cost and that some new government program would not impose new costs and burdens on their business. Banks would love to lend to businesses and provide mortgages if the regulators would stop changing the rules and discouraging banks from making loans to anyone other than to the government.
Maybe there is the worry that government will not get credit for the recovery if there is no new government program to point to, no government guarantee to praise, no stimulus spending to trumpet. Maybe that would be O.K. But I would be ready to vote for the government leaders who removed the obstructions to investment, lowered tax rates, lifted regulatory burdens, and dispelled the clouds of regulations and barriers to growth that are gathering on the horizon.
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