Please Stop Trying to Fix the Economy
When elected government leaders take their oath of office to “preseve, protect, and defend” the U.S. Constitution, they should also swear to do no harm, like the Hippocratic oath for doctors. When pundits criticize Congress for doing nothing, they should celebrate instead. Doing nothing is often the best choice Congress can make.
If Congress 2008-14 had really been a “do-nothing Congress,” the recession would have begun and ended before Twitter world could have asked #wtfisgoingonwiththeeconomy?, instead of lingering like a nagging cough after a severe bout of pneumonia, or the smell of grouper three days later, because you forgot about the plastic bag in the kitchen trashcan that the seafood merchant used to wrap your fish.
In the most recent recession, the failure of government — that is, meddling where it shouldn’t — caused the crises in banking and real estate, and subsequently brought the entire U.S. economy crashing down raising fears of a rerun of the 1930s. The Clinton, Bush, and Obama administrations made very similar mistakes to those of Hoover and Roosevelt by interfering with the free market and exacerbating economic weaknesses with the repeal of Glass-Steagall law (one of the few constructive acts from that era). Compounding the harm were the takeover of Fannie Mae and Freddie Mac, T.A.R.P. bailouts of AIG, General Motors, Chrysler, Bank of America, and Citigroup, the $787 billion stimulus package, and Dodd-Frank Act and the Affordable Care Act. Further stifling the asphyxiating economy, Congress renewed high tax rates: 39.6% income tax; 35% corporate tax; capital gains tax and excise tax. Excessive government spending has pushed public debt to more than the economy’s annual production.
Since 2009, the federal government has implemented $70 billion worth of new regulations, and distorted the economy with subsidies in agriculture, health care, and renewable energy. This is by no means a complete list of government meddling in the economy. Yet, the lethargic recovery is marked by high underemployment, the lowest labor force participation rate since the late-1970s (bogus unemployment rates aside), G.D.P. growth rate hovering around 2% on average for the past five years, and wage increases lower than consumer price inflation.
These types of government policies are exactly what caused the Great Depression’s longevity. hit its lowest point in 1934-35, setting a historical record that has not yet been broken. Compare the reactions of presidents Warren Harding and Calvin Coolidge to Herbert Hoover and Franklin Roosevelt in response to their respective economic depressions. Keep in mind legislation and policies during the Bush and Obama administrations throughout the most recent recession.
The post-war recession of 1920-21, created by Wilsonian progressivism and the Great War, began with an income tax rate at 65%, while the national debt had risen to $26 billion from $2 billion in 1914. Economists, such as Thomas Sowell and the late Milton Friedman, credit the recovery of that forgotten and short-lived recession to the federal government doing nothing to try to fix it. No New Deal. No War on Poverty. No bailouts. No stimulus. No quantitative easing. No zero-interest policy.
What President Harding and Secretary of the Treasury Andrew Mellon did was persuade Congress to cut taxes, cut taxes, cut taxes. The personal income tax rate was cut from 65% to 20% in six years. They lowered estate taxes and repealed gift taxes. Adam Smith’s theory of the “invisible hand” was allowed to balance out wages and production. The private sector had more money to spend and invest in the economy. Spend and invest they did, thus, the Roaring Twenties!
The Harding and Coolidge administrations cut government spending, balanced the budget, and reduced the national debt every year by about $1 billion. These policies spurred economic growth. Wages increased. Production increased. Consumerism increased. The standard of living was raised for all class levels.
The recession of 1920-21 lasted a year or so, and then the economy quickly boomed. The Great Depression lasted over a decade and never would have ended without the boom of World War II. The Great Recession of 2008-10 officially ended, but it hasn’t really. Much of the illusion of recovery is bedded in government obfuscation with statistics and political rhetoric.
Paige Lewis is an adjunct history professor and freelance writer in Charleston, S.C. Please visit her Facebook page Past and Present: Same Difference