President Barack Obama in an effort to reverse the 9 percent unemployment rate and increase economic growth has proposed a new jobs and economic plan through his American Jobs Act. The American Jobs Act is a continuation of the Administration's policies utilizing Keynesian-style measures in order to revive the economy. The plan calls for $447 billion in additional stimulus spending among other elements such as an infrastructure bank, limited tax cuts, and continued support to state and local governments. The American Jobs Act is largely a continuation of the $850 billion stimulus that was originally passed by Congress during the early part of the recession to stimulate the economy. In order to reverse high unemployment and create economic growth policymakers must do the opposite of the American Jobs Act and push for policies which include reduced spending, tax reform, and eliminating unnecessary regulations.
President Obama's and the Democrats' preference to follow the economic thought of John Maynard Keynes in confronting the recession and unemployment harkens back to the New Deal policies of President Franklin D. Roosevelt, who also utilized massive stimulus spending in confronting the Great Depression. In fact some progressives are urging the Administration be bolder in their economic policies by calling for the resurrection of such New Deal programs as the Works Progress Administration and Civilian Conservation Corps, both of which were implemented to reverse the high unemployment of the Depression and bring about economic recovery. Nevertheless the Roosevelt New Deal policies failed to resolve high unemployment.
Economists Richard Vedder and Lowell Gallaway writing in National Review Online argued that the nation's "current malaise stems from a series of policy mistakes" which include "the stimulus package, the bailouts, Obamacare (Patient Protection and Affordable Care Act), and the Dodd-Frank financial 'reform' bills." "They have probably destroyed more jobs than they created, by sharply reducing investor confidence," noted Vedder and Gallaway. In addition, Vedder and Gallaway argue that the expansion in the size of the federal government is a leading cause of high unemployment and slow economic growth.
The debt crisis that faces the United States and Europe is a leading cause of economic uncertainty and slow growth. Government spending is about 25 percent of Gross Domestic Product (GDP), the national debt is over $14 trillion, and the federal government has been running trillion dollar deficits. The spending problem has occurred because of both Republican and Democrat policies, but under the current Administration the national debt has increased by $4 trillion.
Vedder and Gallaway argue that any economic solution must allow "markets to work, promote sound money, government fiscal responsibility, and the rule of law" Following these policies will be the only way to end the economic uncertainty. Historically, following limited government policies has worked to create economic prosperity as demonstrated by the Presidencies of Warren G. Harding, Calvin Coolidge, and Ronald Reagan. Even some Democrat Presidents such as John F. Kennedy, although not a champion of limited government, understood the importance of tax reductions in economic recovery.
The views expressed in this column are those of the author and not necessarily those of the Public Interest Institute.
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John Hendrickson is a research analyst at the Public Interest Institute in Mount Pleasant.I