Why has the current economic recovery been one of the worst in our history?
Former senator and Banking Committee chairman Phil Gramm and Michael Solon, a partner at USA Policy Matters, paint a picture in today's Wall Street Journal of newly-elected President Barack Obama bestriding the narrow world like a colossus and seemingly positioned to usher in a great economic recovery:
When President Obama took office during the 2007-09 recession no president was ever better positioned to lead a strong recovery. With an impressive electoral mandate, Mr. Obama enjoyed a filibuster-proof Senate supermajority, a 79-vote House majority and a nation ready for change. History too seemed to smile on Mr. Obama’s endeavor. The recession ended just six months into his first term and, with the sole exception of the Great Depression, every severe recession since 1870—when reliable annual data were first collected—had been followed by a vigorous recovery.
In his capacity to implement his program, Mr. Obama stood as a colossus with the fates on his side, the vast power of government at his disposal and no one—not Congress, the Supreme Court or the Federal Reserve—willing or able to deny his will. No resources were spared. The Obama $836 billion stimulus exceeded all previous U.S. economic stimulus programs combined. The Treasury borrowed over $1 trillion a year for four years in a row, according to Office of Management and Budget data. The Federal Reserve injected $3 trillion of new reserves into the banking system, generating record-low interest rates.
Every government forecaster predicted happy days would soon be here again.
And yet . . .
Gramm and Solon point out that from 1948 to 2007, the U.S. economy grew at an average annual rate of 3.5%. This figure averages in years in which the economy produced negative results. But in the last seven years growth had not once reached 3%. Average real per capita income has lagged–under President Bill Clinton is grew five times faster than under President Obama, seven times faster under Reagan, and ten times faster during the Kennedy/Johnson years.
Only two of the thirty recoveries since 1870 have been this lackluster: Franklin Roosevelt's and Barack Obama's. During the administrations of both men federal spending skyrocketed and economic paralysis set in. Roosevelt's New Deal brought about a "tectonic shift" that made government more involved in the economy. Roosevelt's barrage of new laws, tax increases, and regulations was unequaled until President Obma.
Gramm and Solon conclude:
Every 10 years between 1870 and 2007, incomes for each man, woman and child in America rose on average by 21.6%, according to census data and the Madison Project. This extraordinary achievement is the tangible measure of the extent to which the American dream actually came true. Only twice did that dream falter—in the Great Depression and the Great Recession. Whether we call it progressivism or socialism, bad policies produce bad results—not just sometimes in some places, but at all times in all places, even in America.
The dominant lesson of the Great Depression and the Great Recession is that when government overspends, overtaxes and over-regulates, economic freedom is suppressed and economic growth vanishes. When growth fades, it takes the American dream with it. Give America back its economic system of freedom and opportunity, and the ensuing growth will bring back the American dream.
A survey of the political landscape suggest that there may be a delay in reclaiming the American Dream.
We do, however, know what policies make an economy grow, and it should not be a surprise that the last seven and a half years have been ones of stagnation.