Stalled by Stimulus
By Michael Barone
NYPost.com
Home mortgage-interest rates are the lowest in his tory, but house sales are plunging. Banks can make money easily because of the Federal Reserve's low interest rates, but they're not making many loans. Major corporations are sitting on something like $2 trillion in cash, but they're not investing.
Unemployment is running at 10 percent, rounded off, for the 11th straight month, but few employers are hiring; a million people have stopped looking for work in the last year. Small-business hiring is at a nine-month low, and retail sales are tailing off.
Government policies designed to stimulate the economy seem to be having the opposite effect. Consumers aren't buying, businesses aren't hiring, and those fortunate enough to have some cash on hand don't seem to be investing.
I call it the mattress economy. People seem to be following this investment strategy: 1) Go to Mattress Discounters and buy the biggest mattress you can find. 2) Take it home, and stuff all your money in it. 3) Lie down, and get some rest.
This hurts the economy, but it's a rational response to the Obama Democrats' public policies. And that's not just the view of their political opponents.
Consider the plaint of Verizon CEO Ivan Seidenberg, head of the Business Roundtable, which has played footsie with the Obama administration for most of the last 18 months: "By reaching into virtually every sector of economic life," Seidenberg recently wrote, "government is injecting uncertainty into the marketplace and making it harder to raise new capital and create new businesses."
Or take a look at Obama backer Nate Silver's fivethirtyeight.com Web site. "Why aren't businesses hiring?" asks tax lawyer Hale "Bonddad" Stewart. "Uncertainty: There has been a tremendous amount of change over the last 12 months. Businesses are still trying to figure out what this means for their bottom line.."
In other words, the Obama Democrats' vast expansion of the size and scope of government -- and the threat that they may pass even more such legislation -- has chilled the animal spirits that John Maynard Keynes said were the driving force for economic growth.
Instead of stimulating the economy, the Democrats' policies have shocked it into immobility. People are lying on their mattresses, waiting for the next shock. At least one is definitely coming: The Bush tax cuts expire at the end of the year, which means that high earners can be sure they'll soon keep less of what they make.
Politicians up for re-election are taking notice. Congressional Democratic leaders can't round up the votes for another stimulus package and have not dared to ask their members to vote for a budget resolution.
Democrats can plausibly claim that their 2009 stimulus package, passed less than a month after President Obama was sworn in, prevented a 1932-style downward spiral. But it didn't hold unemployment below 8 percent, as they promised.
They can argue that Treasury Secretary Timothy Geithner's stress tests prevented a meltdown of the big banks. The problem is that it didn't get them back into the lending business.
Democrats can claim that the GM and Chrysler bailouts are working out better than some doomsayers predicted. Unfortunately, the transfer of assets from secured creditors to the United Auto Workers has undoubtedly deterred investment in similar enterprises.
But the brute fact remains that even huge government spending can't revive an economy when government threatens to take away anything you earn.
America has seen this before. In the late 1930s, when Franklin Roosevelt raised taxes on high earners, encouraged lawless sit-in strikes by labor unions and took over utility businesses, the response was a "capital strike."
Instead of creating jobs, businesses and investors put their money in mattresses. The result was a stagnant economy and double-digit unemployment -- and a 75-seat Republican gain in the 1938 off-year elections.
Back then, the economy eventually perked up thanks to
mobilization for World War II. No such mobilization appears on
the horizon today. You may need to get a bigger mattress.