Gregg: Stimulus that failed to stimulate

Gregg: Stimulus that failed to stimulate
© Getty Images

We are now six years into the recovery from the recession caused by the financial meltdown of 2008.


During this time, the federal government has racked up budget deficits that have exceeded $7 trillion. The federal debt has more than doubled and is on what appears to be an inexorable march to tripling before the end of the decade.

At the same time, the Federal Reserve has chimed in by expanding its balance sheet — a euphemism for printing money — to the tune of $4 trillion.

This is the most money ever printed in such a condensed time frame in the history of the nation.

In addition, but almost unnoticed, the government mortgage industry has added approximately $1 trillion of lending.

Even by generous standards, this is a lot of stimulus.

Applying traditional Keynesian economic theory, or even just common sense economic theory, it would seem that this level of expansive activity by government and quasi-government entities should have lead to a much more robust economy, which would in turn generate many more jobs.

However, the unemployment rate sits at 6.7 percent. This is admittedly down from a peak of 10 percent in the darkest days of the recession. But the decline is primarily because so many people have stopped looking for work and are now not counted as unemployed for statistical purposes.

The economy is growing but only in an anemic manner. There is little cause for confidence that it is about to drive forward with real force.

This is especially disconcerting in the face of some very positive changes that should be putting considerable lift under our economy.

The most significant factor is that we are moving toward becoming a nation awash in domestically-produced and reasonably-priced energy.

Energy costs pervade all segments of a developed economy and this shift should be giving our economy a dramatic boost. But it has not happened, at least so far.

Never have we seen so much stimulus with such a marginal effect.

Only the value of the stock market has shown any significant signs of resilience. But this run-up , rather than being a reflection of strong fundamentals of the underlying economy, seems to be driven more by people seeking some relief from the bond market and other vehicles that give a de facto negative return on capital.

Only history will sort out what has caused this massive government injection of itself into the economy to sputter. But a few thoughts need to be considered.

First, it should be obvious now that you do not grow a market economy by weakening the incentive to participate in the market.

Almost all the major policies of this administration have been directed not at sparking economic growth but at taking care of those they identify as having been damaged by the lack of economic growth.

It is now becoming obvious that these policies, whether practiced in France or here, are disincentives to growth.

Second, it is difficult to create a sophisticated economy in the 21st century with a 1950s education system, where merit is frowned on and teaching to the average is insisted on by those who set the standards.

Almost 30 percent of the delegates to the last Democratic National Convention were members of teachers’ unions. Their agenda is not better education; it is the protection of jobs and benefits.

Third, technology is changing the fundamentals of who is employed and what the size of the workforce will be. To address this you do not need more government stimulus. You need to be constantly on the cutting edge of new technologies and generate a true value-added society.

The international competition in this arena is fierce and getting stronger. If we want to grow the economy instead of driving up deficits, the government should increase the number of people allowed into the country who have the skills to add to the improvement of our technology and who will give us a competitive edge.

Why leave these folks in China or India to create jobs there when they want to come here? In many cases, they have already been educated here and could create jobs in the United States if only they were permitted to do so.

Fourth, put in place tax laws that reward people for investing for the best return rather than for the best tax deduction. The tax policy of our nation may well be the single biggest drag on our economy. The rates are too high, the deductions are too many and too rich, and too few people pay income taxes.

We need to change course.

Government has a major role to play in straightening out our economic house.

Give the American people a playing field that allows them to compete and they will lead the nation to better days and a higher standard of living for the next generation.

They deserve government that works for this century and is not mired in the ideas and policies of the last century, or of Europe.

Judd Gregg is a former governor and three-term senator from New Hampshire who served as chairman and ranking member of the Senate Budget Committee.