How to Stave Off Economic Recovery

By William Murchison (Archive) · Tuesday, March 30, 2010

"[With health care done] Democrats will turn unequivocally to the economy, putting forth additional efforts to accelerate the recovery." -- John Harwood, The New York Times, March 29

"Efforts" such as, um, well, hmmmmm …

Something anyway: a cycle of speeches from the White House; federal grants for job creation; exhortations to start hiring and spending in the expectation of a recovery that's just around the corner. Well, isn't it?!

The Democrats, who had to execute the political equivalent of Gettysburg to squeeze Obamacare through the narrowest of congressional apertures, know they have to boost the economy fast. The problem they -- and we -- face is, how? What can they do at this point, not least on account of their own economic preconceptions?

What a pity the late Milton Friedman isn't around to explain with characteristic snap and crackle that the great engine of economic progress is the expectation of profit. It would take all the snap and crackle at Friedman's disposal to make any impression on politicians who look suspiciously on anyone interested in economic gain. The 2008 elections put such politicians in control of the federal government. The likes of Nancy Pelosi and, apparently, Barack Obama don't get this whole profit thing, which they equate with greed. What's more, they seemingly don't care to get it.

If they truly got it, they would never have jacked up taxes and regulations under the pretext of health care reform. They would have known, with or without Dr. Friedman's help, that putting people to work means encouraging them to expect rewards for so doing -- bigger profits, for instance, on account of lowered tax rates.

With the jobless rate nearly in double digits, and unlikely to fall any time soon, the best way to encourage hiring, investment and economic expansion would be to cut taxes. Wait, though: How do we do that, with the Democrats having committed business and the obviously wicked "wealthy" to pay for expanded health care? Not to mention other big spending increases in the Obama budget?

At present, says the Heritage Foundation, we're looking at a permanent 3 percent expansion of the federal share of Gross Domestic Product. Some of the spending money we'll borrow, and the rest we'll tax away from those with -- in the Democrats' judgment -- money to spare. Over the next decade, the president's budget calls for increases of $3 trillion in federal taxes, with levies on the two upper brackets rising, respectively, from 33 percent to 36 percent and 35 percent to 39.6 percent. Taxes on capital gains and dividends are to rise from 15 percent to 20 percent.

Given this scheme, where's the room for treating the producers of wealth with even minimal tact -- cutting their taxes, say, to encourage hiring and investment? The last time we saw the present degree of nuttiness was the '70s, when the Carter administration proposed to encourage the expansion of energy supplies by slapping "windfall profits" taxes on the suppliers of energy. Back then, the refrain was work, slaves, work!

Every Easter/Passover ABC returns the old DeMille semi-classic, "The Ten Commandments" for renewed viewing. We all could benefit by watching the Egyptians try to build a city by flogging the Hebrews half to death. It works only up to a point: The point at which the taskmasters reduce the work force to stuporous failure or rebellion. Along comes Charlton Heston. We know the rest of the story.

The pharaohs of the Beltway have a comparably odd way of inspiring ingenuity, inventiveness, vision, sacrifice and risk. It amounts to telling the risk takers, thanks, good work, now hand over. An intuition arises concerning the federal method: Namely, that the risk takers won't be taking much risk before November in the way of new hiring, business expansion, etc. They will sensibly wait to see the American people's judgment, delivered at the polls, on their government's half-baked formula for putting Americans back to work.

We'll see what the Republicans offer by contrast. It helps to remember that Charlton Heston was a Republican.

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