Today’s jobs survey points to slowing growth, but we are still far from a recession. And as my CEI colleagues and I have said before, the best things the government can do is remove tax and regulatory impediments to growth, and not make things worse through ill-conceived intervention that could scare away business investment.
First, a little context about the 5 percent umemployment rate being bandied about. Buried in today’s Associated press story is that claims for unemployment benefits rose three-tenths of a percent, from 4.7 percent in November to 5 percent last month.
But the unemployment rate was consistently above five percent during the first five years of the Clinton administration. (See this 1996 CNN story where 5.6 percent unemployment is described as “low.” )
The simple fact is the media hits the panic button a lot more when the president is a Republicn. I don’t mean to sound like a GOP partisan, and Open Market readers know that I have criticized the Bush administration on everything from its “voluntary” mortgage rate freeze to his support of proposals to massively expand the Federal Housing Administration. But although Bush’s overall economic policy is far from perfect, the fact that unemployment has been below 5 percent for all these years points to some degree to the positive effects of the 2003 tax cuts on dividends and capital gains.
Still, the lower than expected job growth points to a slowing of the economy, and both the administration and Congress are partly to blame. Bush and Treasury Secretary Henry Paulson’s early December freeze of borrowers’ rates on adjustable-rate mortgages — done voluntarily by lenders but in response to the underlying threat of regulation — shook the confidence of investors that the U.S. respects the sanctity of contracts. In Congress, Democrats’ proposal to sharply hike taxes on private equity partners — which passed the House but stalled in the Senate — and the other tax hikes they continue to pursue may have discouraged investment and spooked entrepreneurs.
So too would the threat of overregulation in bills such as Barney Frank’s “mortgage reform” act, which passed the House late last year, that would put a host of costly new mandates on banks and could cut off mortgages even to creditworthy borrowers. The renewable fuels and fuel economy mandates — which did pass Congress and which Bush signed — will also add significant costs for both consumers and carmakers.
What policymakers need to do, in addition to cuts in corporate tax rates and other tax cuts, is remove regulatory barriers to stronger growth. For instance, both Republicans and Democrats said in early in 2007 that the Sarbanes-Oxley accounting mandates, passed in 2002 in response to scandals such as Enron, overrreached and were keeping legitimate companies from going public. Surveys have shown that it tripled the costs of being public for many U.S. firms.
Yet reform talk seemed to stall when credit problems emerged. But ironically, the credit crunch has made Sarbox reform all the more urgent. If firms can’t borrow money to expand, they need the option of raising capital through issuing stock to the public. Yet many smaller firms don’t have that option, because of the prohibitive costs of Sarbanes-Oxley.
A recent book, The Forgotten Man by Amity Shlaes shows how the government basically turned an economic contraction into the Great Depression through policies of intervention by both Herbert Hoover and Franklin D. Roosevelt. As were pondering solutions to current economic issues, we should take the real lesson of the Depression to heart.