The American economy is unwell. The growth of manufacturing slowed in the spring, as did job growth, which was a dismal 54,000 jobs in May. Unemployment is rising again. Gasoline is nearly $4 per gallon, reducing tourism and retail sales while increasing the cost of everything from airfares to package delivery. And the housing sector, where so much personal wealth is invested, continues to retreat, with prices now down to 2002 levels. Not since the Great Depression three generations ago has recovery come so slowly after an economic crisis. Once again, as has been the case since the crisis began in 2007, most of the discussion about this has come to center on what the federal government can and should do to create growth. The problem is that the government has spent more than two years and more than $1.5 trillion trying to fix things, with what can charitably be described as limited results.
The Federal Reserve Board has arguably been more active since 2007 than at any other time in its history, structuring bank bailouts, injecting liquidity into the system, slashing interest rates and keeping them low, and working hand in hand with both the Bush and Obama administrations. Now it has just about shot its bolt. Its $600 billion effort in 2010 to speed up the economy through a second round of “quantitative easing” has proved ineffective. And the Fed has almost no room to maneuver when it comes to interest rates; they can’t fall below zero, after all.
So much for what the unelected powers in Washington can do. The situation is even more sobering when it comes to the policy choices of elected Democrats. Economists on the left, such as Christine Romer and Paul Krugman, want Congress to enact further Keynesian fiscal stimulus. They claim that the $814 billion stimulus package of 2009 wasn’t large enough to do the job of getting the economy growing strongly. The age-old truism that one shouldn’t throw good money after bad would seem to apply here; but even if it didn’t, the notion is risible from a practical standpoint. The public appetite for further stimulus spending is nonexistent. The election of 2010 made it abundantly clear that the public wants the government to spend less, not more.
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