WASHINGTON, June 22, 2015 — A June 22 New York Times editorial, “Obstacles to Economic Growth,” suggests that the recent slowing of the economy can be fixed by increasing government spending. Like Hillary Clinton, the Times editors believe that business doesn’t create jobs and grow the economy.
The economy hasn’t seen adequate economic growth in almost a decade. Since the recession technically ended in mid-2009, economic growth has averaged just above 2 percent annually. This happened even though annual federal spending increased by over 3 percent annually, from about $3.2 trillion in in fiscal 2008 to almost $4 trillion expected in fiscal 2016, which begins on July 1.
Even with that historically huge increase in government spending, the economy grew at about half of the rate more normally seen after a severe recession and at a lower rate than the federal budget.
NYT notes that job creation has slowed considerably from an average of 255,000 jobs per month over the past year to 207,000 jobs per month over the past three months. In addition, the Federal Reserve has lowered its forecast for growth this year from 3.1 percent to 1.9 percent.
To reverse this, NYT says “What’s needed most is public and private investment in the economy.” The remainder of the column discusses only public investment by the government and doesn’t mention anything to stimulate private investment. Like Hillary Clinton, who recently said, “Business doesn’t create jobs,” the editors at the NTY don’t understand economics.
This becomes even more apparent when they say that in 2013, “politically motivated budget cuts shaved an estimated 1.6% from growth and … led to the loss of about one million jobs.” That’s poppycock.
Government spending in 2013 decreased for the first time since the 1940s by about $135 billion. If a spending increase of $800 billion failed to stimulate the economy, how can a decrease of $135 billion have such a negative effect?
The reality is that growth in the economy comes from the business sector and private investment. The correct action to stimulate the economy is not for the federal government to continue to spend more, but to encourage increases in consumption and private investment.
President Obama has raised the capital gains tax rate on marginal income for Americans who contribute most to the economy from 15 percent to 23.8 percent. Those higher tax rates reduce the amount of investment capital for business to spend on future growth and job creation. He also raised a number of taxes on the middle class with the passage of the Affordable Care Act.
Obama has added numerous regulations to business that increase cost and create barriers to entry into markets. This too slows growth. Adding burdens for health insurance, increases in the minimum wage and paying more salaried workers overtime, are examples of growth-slowing actions.
The NYT says, “wrongheaded fiscal tightening (is) no doubt intended in part to deny President Obama a robust economic legacy.” Are they serious?
The fiscal tightening is done so that our children and grandchildren will not be burdened with a huge public debt, which was about $11 trillion when Obama took office, now stands at over $18 trillion and will likely approach $19 trillion by the time Obama leaves office.
Add to that burden a Social Security system that will be bankrupt within 15 years and the Medicare, Medicaid and other health care costs, which are grossly underfunded, and our offspring will be working just to take care of the elderly and those who for whatever reason cannot support themselves. This burden will reduce economic growth and provide a lower quality of life.
The NYT further says that the government sector “is supposed to spend and invest more when consumption and private investment are inadequate.” But in the last six years, how has that worked out for the U.S. economy? The federal government continues to spend, yet the economy is not growing at an acceptable rate.
Rather than spend money in areas where a bureaucrat thinks it should be spent, a better answer is to encourage consumers and business (through private investment) to spend more. This is done by doing exactly the opposite of what Obama has done for the last six years. That is, he should reduce taxes for consumers and business so they have more to spend and invest in areas where the American people, through the market, decide the money should be spent. He should also reduce regulations and other burdens to encourage business expansion.
That’s what President Reagan and Congress did in 1981, and it led to a 26-year expansion (with brief hiccups in 1991 and 2001). Once the economy is growing, there will be more money to spend on public investment.
Are the editors of the NYT insane? After all, it is said that the definition of insanity is to continue to do the same thing over and over and expect different results.