Tuesday, September 6, 2011

How Not to Grow an Economy

The Wall Street Journal described a week in the life of our beleaguered economy a couple of weeks back, which nicely revelaed a snapshot of our federal government's unremitting assault on the private sector.  It's quite a picture: taxes on the horizon, with Warren Buffet even pandering to pay more; Fannie Mae and Freddie Mac's domination of the mortgage market to continue (with taxpayers picking up the tab for multi-trilliion dollar mistakes, of course); the Justice Department initiates an investigation into Standard & Poor's--alone among the three major ratings agencies--less than two weeks after S&P downgraded U.S. Debt (S&P's President, Deven Sharma, was subsequently forced to resign); Exxon is denied routine oil lease extensions after a huge find in the Gulf of Mexico; U.S. regulators publicly alarm markets about European banks and contagion; and the President gears up to announce more stimulus initiatives after Labor Day.
The thinking, say aides, is to pressure Republicans to pass these proposals or look indifferent to high unemployment. So even as he proposes to reduce deficits far into the future in ways that will depend on decisions by future Congresses, the President will fight to increase spending immediately. Americans may conclude they've heard this cognitive dissonance before. 
None of these stories by themselves—or even a week of them—is enough to undermine a recovery. But the cascade of such stories day after day—about new regulations, new prosecutions or fines against business, new obstacles to investment, more spending and higher taxes—contributes to the larger lack of business and consumer confidence. 
It's impossible to quantify the impact of such policies on lost GDP or lost job creation, but everyone in the real economy understands how such signals work. The great tragedy of the Obama nonrecovery is that this Administration still doesn't realize the damage it is doing.
The gist of the matter? "Day after day brings headlines of another legislative, regulatory or enforcement action that gives CEOs and investors reason to hunker down, retain as much cash as possible and ride out whatever storms are ahead."  Individuals behave the same way, in their several capacities as small business owners, consumers, lenders, borrowers, etc.  That's how people behave when confronted with overreach and predation, even by well-intentioned or all-knowing government actors.

Incompetence aside, Noman is concerned about something darker in these vignettes.  The S&P investigation especially smacks of Administration payback and smash mouth politics.  It's not economically healthy for the agencies that determine the credit-worthiness of institutions (whether done capably or ineptly) to labor under the sword of Damocles knowing that if they perform their function in ways unpleasing to power, heads will roll.  It reminds Noman of Lord Acton's dictum that absolute power corrupts absolutely.  When the government's response to a capital market rebuke is to make it harder for the capital markets to function credibly, we have reached the point of absolute corruption.  

This is the second Chicago-style retaliation from DC in recent months, the other being GE CEO, and Obama jobs czar, Jeffrey Immelt's announcement that GE would be closing a Wisconsin X-ray factory and moving it to Bejing.  There are credible business reasons for doing so.  But, it's a galling move from the man the President has entrusted to seed his Administration with ideas for bringing tomorrow's jobs back to the U.S.  The timing was also horribly suspect.  This move came after the government of Wisconsin bravely stood up to public employee labor unions and corrupt Democrats--despite the President's personal ministrations on behalf of the status quo--in order to reign in the State's budget deficits, and to achieve all of the salutary economic benefits flowing from that virtuous act. 

This inability to discern limits, and fury to punish enemies, is especially dangerous when coupled to economically suicidal ideas.  President Clinton also played hardball, Democratic style.  But, his crew was feckless compared to the Obama Administration.  Does the reader recall former Miss Arkansas, Ms. Elizabeth Ward Grayson, who had the misfortune of succumbing to then Governor Clinton's amorous advances, and the even greater misfortune to be audited by the IRS shortly after confessing to the tryst.

This is child's play compared to the shackling of the U.S. economy presently underway, and the narrowly political calculus of power and its uses guiding action in DC.  Remember all this when the President unveils his jobs plan for the nation this week.

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