Stimulating Failure
Posted 11/06/2009 07:27 PM ET
The Job Report: Another month, another drop in payrolls. Will it ever occur to our leaders in Washington that what they're doing isn't working — and may actually be damaging our economy?
News that the unemployment rate jumped to 10.2% in October, its highest level since 1983, as the economy shed 190,000 nonfarm jobs, underscores the spectacular failure of the so-called fiscal stimulus to stimulate anything other than economic misery.
Since the $787 billion stimulus was passed in February, the economy has lost 2.9 million jobs — for a total of 4.3 million since the end of 2008. The silver lining, some say, is the number of jobs lost each month is shrinking. But they lose sight of this: There's no guarantee the economy's 3.5% growth in the third quarter will continue.
Indeed, some worry the economy is on a slow-growth path that will lead to permanently high joblessness, weaker income growth and fewer opportunities. The Blue Chip consensus of more than 50 economists nationwide expects unemployment to remain above 8% at least into 2012.
Why should this be? Well, start with the fact that virtually all job growth comes from companies with fewer than 500 employees, and that startups and very small businesses are responsible for more than half of all new jobs.
Today, these entrepreneurial job creators are running scared. That the White House vows to jack up taxes on those with "high incomes" (that is, entrepreneurs) is one reason why. Next year's scheduled expiration of the Bush tax cuts that pulled the economy out of the 2001 recession is another.
Higher income taxes, a flood of stiff new regulations and the possibility of at least $2 trillion in new taxes related to cap-and-trade and a health care overhaul over the next decade have created a climate of uncertainty — for small and large businesses alike.
Businesses are hunkered down. They have $1 trillion in cash stashed away, but they won't invest out of fear it'll be taxed away or some government czar will tell them how to run their business.
At the same time, banks have a record $800 billion in reserves but can't seem to find any worthy borrowers.
The White House claims its stimulus "saved or created" 640,000 to 1 million jobs. But no evidence shows that's true. Stimulus has failed. If anything, borrowing hundreds of billions of dollars to fund such feckless initiatives is destroying private-sector jobs. Time has come for a dramatic change of course.
