Fiscal stimuli from the federal government have never worked as planned. The New Deal prolonged the Great Depression despite the promises of the FDR Democrats in the 1930s. And Obama’s stimulus in 2009 led to the slowest and weakest recovery from a recession since World War-II. And yet that’s what the political class does. Since their only really job (in their minds) is to throw money at any problem – whether real or make-believe – that is what they do. Ask yourself when do political solutions ever actually fix any real problems? All they do is exacerbate them through over-taxation, over-regulation, and distorting markets.
It would appear that that is what Democrats (and some Republicans) are about to do as they all pile onto the stimulus bandwagon. It makes it appear to people that they are “doing something” when in reality, they will likely be doing long-term damage to the economy. Shades of the 1930s!
There are cooler heads that are looking at pro-growth solutions that will jolt the economy back from the abyss and provide real growth stimulus that is needed. Laura Ingraham interviewed two of them on her show last week. Amity Schlaes is the chairman of the Calvin Coolidge Presidential Foundation, and author of Great Society: A New History and Steve Moore, was an economic adviser to the Trump 2016 campaign and author of Trumponomics: Inside the America First Plan to Revive Our Economy. Here is some of their dialog:
Ingraham: You (Amity) were advising that we should avoid doing the things we did in the 1930s that hurt our recovery [from the Great Depression]. What were you referring to specifically?
Schlaes: I wasn’t too happy to hear Senator McConnell to say “no ordinary time.” That is in reference to the New Deal of Franklin Roosevelt, which is what we did in the 1930s. What President Roosevelt did – as lovable and inspiring as it was – prolonged the Great Depression. It put the adjective “great” into the phrase because we had unemployment for years at 10%. Think of that in contrast to now. And the Dow did not come back for a whole decade. Imagine now if we find out that the Dow won’t get back to where it was two weeks ago until we’re in our rocking chairs. That’s awfully disconcerting. The bottom line is what happens when the government intervenes too much.
Ingraham: People are desperate, and they’re looking at these jobless claims. A month ago, we had the strongest economy in the world – the strongest economy in decades – and now here we are: shuttered in place or safe space, safe distancing. People out of work. Can’t go anywhere, can’t do anything, can’t spend any money. What is the pathway? Are they [Congress] on the right path?
Moore: I am frustrated with this whole stimulus idea because stimulus has never worked. Amity is right about what happened in the 1930s. By the way, there is a whole mythology about how wonderful the New Deal was because the Left wrote the history books, and that’s what everybody learns. It didn’t work in the 1930s; we had double-digit unemployment throughout Franklin Roosevelt’s presidency. And we tried this again back in 2009 when Barack Obama was president. Remember the shovel-ready projects and the $830 billion we were gonna spend that was gonna spring the economy back to life. And remember Joe Biden had his “summer of recovery”? It never happened. It was the worst recovery from a recession we’ve had going back to the Great Depression. Even by Obama’s own numbers, the economy would have been better and would have healed faster if we had not spent any of that money. My first advice to Donald Trump is don’t do what we did in 2009 under Obama because it didn’t work. It he puts in place policies that actually hurt the economy, as some of these policies would, you’re talking about [saying hello to] a President Joe Biden. He’s got to have a growth plan. [We] have talked about the idea of suspending the payroll tax for the rest of the year to give businesses an incentive to hire more workers because it would be a tax cut for every one of the 26 million small businesses.
Ingraham: But what if people don’t have any money to spend? What do people do?
Moore: We have programs already for people who have lost their jobs, for example, unemployment insurance. … [Even my seventh-grade stepsons figured out government handouts, saying,] “Why would anybody work if the government’s going to give you free money?” And, “Isn’t that inflationary?” Now if they can figure that out, why can’t members of Congress?
Ingraham: You know the pressure people are under to say, “we’ve all go to come together, we’ve got to work together, we have to go something,” so it’s always the people who are asking the questions who are always vilified. If you ask a question about a lockdown, or write an editorial rethinking the coronavirus shutdown, you’re vilified.
Schlaes: There are answers to our economic problems that are much more dramatic and useful than what the administration is proposing or the Senate is proposing. You say you can’t say things, and you’re absolutely correct. For example, what if we cut the capital gains tax by half? Forget about the surcharges, so from 20% [to 10%]. We would be attacked for “helping the rich,” but every economist including all the way over on the Left including the Marxists knows that if you cut the capital gains tax rate by half, international investment would raise our stock market TOMORROW. It’s just that they don’t dare say it. Republicans act like Democrats in an election year. It’s unfortunate that there are many more steps to growth that we could take; we just have to be a little bit braver than we’re currently being. The Republican Party is almost indistinguishable from the Democrat Party.
Moore: I think this is a very dangerous situation. I just heard the report about what they’re doing locking down the whole state of California, telling people they can’t leave their homes without government permission. This is a very dangerous and almost Orwellian situation. If this goes on where we have people locked down and can’t go to work for weeks, you’re talking about economic damage that would be in the trillions of dollars, and we have to ask this question, “Is it worth trillions of dollars of losses?” Think of the human suffering in terms of the lost income, the lost life savings. “Is that worth it to deal with this?” It’s a question worth asking because I’m starting to think that maybe we should get people back to work as fast as we can.
Ingraham: It’s a question of if you’re locked down for months and you can’t go anywhere, you can’t really see anyone close up. … That’s not America. People are already beginning to ask that question, and we haven’t even got through a week of this.
End of the Q&A. Schlaes and Moore are correct that the right way to preserve and stimulate the economy is through supply side economic policies: cutting the payroll tax and cutting capital gains taxes. The goal should be to keep businesses in operation with incentives to hire not fire people, and to get people back to work as quickly as possible.
The stimulus packages being compiled in Congress are Keynesian demand-side stimuli which has never worked in the past. In addition, there is a high likelihood that Democrat will include provisions that distort markets and forward-fund programs that they know would never be funded under normal circumstances. For example, it wouldn’t surprise me if they tried for forward-fund Planned Parenthood for years as one of their demands for passage of the bill. It’s a crying shame that there are so few Republicans in Congress who understand supply side economics and its benefits.