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An Effective Washington Jobs Program: Do Less Harm



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Unemployment remains high. Economic growth is near nonexistent. And Washington policymakers still struggle to find policy ideas that can jumpstart the economy. It’s time for one of the nation’s capital’s least favorite moments: the reality check.

 Reality Check No. 1: It is now painfully and abundantly clear that the economy is flat on its back. If the economic data weren’t convincing enough, the fact that the president has scheduled a rare speech before a Joint Session of Congress tonight is the clincher.

Reality Check No. 2: The president’s speech is a tacit admission that his economic policies have failed. As soon as he takes the podium in the well of the House of Representatives, his simple presence will attest to the world — I, Barack Obama, was wrong. All the window dressing and White House spin cannot obscure that indelible reality. His speech will then be a plea for a mulligan, a do-over, a second chance, and political survival.

Some acknowledge his policies have failed but argue that it was a matter of execution. Specifically, they argue that the problem with the president’s 2009 fiscal stimulus and all that followed is that, despite its historic, gargantuan proportions (nearly a trillion dollars on top of an already exploding deficit), it just was not large enough.

If you believe in a theory because it’s the only one you’ve got, and it fails miserably, you have but two choices — admit the theory is wrong or argue the application was faulty. Supporters cannot admit they were wrong, so the fault must lie in the application.

To recap, the theory that an increase in deficit spending can boost the economy is a form of fiscal alchemy. It suggests the government can increase deficit spending, borrow the money, and the money just magically appears. It ignores this little process called intermediation in which financial markets take saving from those who do not need the money immediately and make it available to those with more immediate needs, for a price. When government increases its borrowing, it means less saving is available to the private sector. Total demand is shifted, not increased. The jobs created by the spending are matched or more by the jobs destroyed by the borrowing. This is as true during recessions as it is during booms. Alchemy.

The good news is that, despite lingering weaknesses in the housing sector, the economy is poised to grow. It’s ready to grow. Why, then, is it not growing? The answer, Reality Check No. 3, lies in but one word: Washington.

It is all too easy to blame government for all the nation’s troubles. But, sometimes, the shoe fits perfectly. This is one of those times.

In its efforts to be helpful, or at least to do something, Washington just keeps getting in the way. The metaphor of the hospital patient is overused, but it’s too appropriate to forego.

When the patient was wheeled into the emergency room in 2008, Dr. Washington was needed to staunch the bleeding, which in this case mostly meant actions by the Federal Reserve to stabilize the financial system. Very little done by the Congress or by either Presidents Bush or Obama helped at all, and much of what was done made the patient weaker still. But the patient is now in recovery, and mostly just needs time to get his strength back. The economy, like the human body, has amazing healing capacities if given half a chance. What the patient does not need is a constant series of “let’s try this” painkillers and procedures applied just so the policy doctors can feel good about themselves.

What the economy now needs is for Washington to defy its nature and adopt a “do less harm” approach to policy. A “do no harm” approach would be better, but government is incapable of doing no harm, and it’s important to set reasonable expectations.

Once the Washington policy establishment shifts its thinking, applying “do less harm” will prove relatively easy. It means the president needs to stop threatening higher taxes. It means a freeze on the regulatory onslaught. (The president’s recent blocking of EPA’s ozone ruling is just what the doctor ordered.) It means pushing free trade, including submitting the three negotiated treaties the president has said he supports but refuses to submit to the Senate for ratification. It means ending the de facto blockade on most real (as opposed to wishful-thinking alternative) energy production. It means tackling federal budget deficits at their source — spending.

This “do less harm” approach was neatly captured recently by John Shiller, Chairman and CEO of Energy XXI, when he said on CNBC, “If the government would get out of the way, from a regulation standpoint, and let us do what we do good, you’ll see us continue to hire and grow the economy.”

One difficulty with the “do less harm” policy approach should be acknowledged. The patient won’t be doing calisthenics any time soon. Nothing Washington can do will push the economy from flat on its back to a brisk jog in just a few months. Sprinting fast enough to push down the unemployment rate noticeably will take even longer. But given a chance, the economy will begin to perk up in a few months, and accelerate steadily in the months and years thereafter. If only Washington will just cut it a break and do less harm.  

— J.D. Foster is the Norman B. Ture Senior Fellow in Fiscal Policy at The Heritage Foundation. 



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