Many articles lately have lamented the fact that the government had done all it can do to promote economic growth and the economy is still in the tank. As a recent column by famed economist and commentator Walter Williams pointed out this is not necessarily a bad thing. When FDRs biggest magic bullet, the NRA (National Recovery Act), was declared unconstitutional the economy jumped and unemployment fell. The repeal of the NRA did what implementing it could not, that is give the economy a boost (a repeal of Obamacare might have a similar effect). Unfortunately the Roosevelt administration was not out of bullets and passed the Wagner Act and the economy went down hill again. The economy would not really recover until after WW II.
During the Great Depression the government was quick to shoot economic bullets, never bothering to see what they were hitting. The strategy (if it can be called a strategy) that Roosevelt and his advisers were following was heavily influenced by famed economist John Maynard Keynes. Listening a couple of years ago to a self described Keynesian Economist speaking to a group on C-Span I was amused to hear him remark how the Keynesian policies of FDR had worked so well during the Great Depression in keeping the U.S. economy from completely falling apart. He further elaborated on how he and other Keynesians were perplexed on why the U.S. economy did not slip back into recession after the war. It seems the fact that Truman did not follow the Keynesian road map should of meant certain disaster. Of course that is the very reason the U.S. did not slip back into a depression.
The situation after the war has some direct correlation to the situation today. The American industry had cash reserves after the war as they have today. They were primed for new growth, they just needed government to get out of the way. With the death of Roosevelt and the hands off policy of Truman the companies took off. For the first time in decades they could plan and work without worrying about big brother. The free market was finally free again. American industry today is also setting on huge amounts of cash and like before they just need government to get out of the way. Given the right economic environment it is likely we could return to a healthy economy.
Now things are not exactly the same as the post war years. The biggest difference may be the American public had little debt and substantial savings after the war, which certainly helped. They had been doing for years what Americans are just starting to do, save and pay off debt. This could very well be a tempering factor but not something that should prevent a recovery. Despite some economic theories to the contrary it is producers that drive a country’s economy and create its wealth not consumers.
The fact is the foundations for growth are in place; it is something else that is preventing economic expansion. Some blame the Euro Zone or other on going credit worries but the real dampener of economic growth is sitting in the White House. The Obama administration has been following both a Keynesian road map and a progressive one. The result is a economic double whammy. On one hand it has been moving tremendous amounts of money around which in effect starves some areas to benefit others (the others being mostly left wing pet projects). This is purely Keynesian, the idea being that it does not matter if you are building bridges or pyramids, as long as you are forcing capital to move it will force the economy to move. The fact that it has never shown any success at producing sustained growth does not deter its supporters. The second agenda introduced Obamacare, more stringent EPA regulations, increased financial hoops, and a out of control Labor Relations Board (that pesky Wagner Act mentioned earlier) to name a few. These governmental bullets have kept businesses large and small paralyzed. Not knowing what energy or health care cost is going to be or even what new rules are coming around the bend or in some cases not even knowing what the rules are now has made planning impossible. The result is paralysis of the private sector and economic stagnation.
This administration has been shooting a lot of bullets it seems and it also seems they have been shooting to kill. The idea that the government has run out of bullets is likely wishful thinking. A government that at present is trying to shut down a new factory in S. Carolina, forcing large numbers of coal power plants to close, resisting oil exploration at home (while promoting it in Brazil) and is well on its way to outspending all previous administrations combined seems far from being low on ammo.
At this point the best things for this economy would be for the Obama administration to get out of its way. It could start by relaxing or at least slowing down the implementation of new EPA rules (we already have some of the cleanest coal plants in the world), welcome new factories, relax controls and red tape, lower taxes on investments and corporations and suspend new programs like Obamacare. Instead of artificial low interest rates and programs like QE 1 and 2 that undermined the dollar and chased investors away lets free up more capital for investment and strengthen the dollar by reducing the amount of money the government removes from the economy through borrowing. That would mean reducing the size of the government and balancing the budget. These are the types of government bullets we could use.
Unfortunately for us the government bullets that are best for the economy do not fit into any of the present administrations arsenal of weapons. So when someone says the government is out of economic bullets we can only pray and hope they are correct but the the evidence says they are wrong.