Gross domestic product fell by 0.2 percent in the second quarter, according to the U.S. Commerce Department. Already there was a 0.4 percent decline in the first quarter. CEI Senior Fellow Ryan Young explains that, regardless of whether we call it a recession, we have problems that lawmakers helped cause with their never needed pandemic-triggered stimulus and spending spree:
“Stimulus was the main policy response to the COVID-19 pandemic, and now the bill is coming due. The ‘ready, FIRE! Aim’ policy approach from Presidents Trump and Biden, Congress, and the Federal Reserve resulted in $5 trillion and counting in new deficit spending from the political branches, plus a roughly one-third increase in the money supply from the Fed. The price for yesterday’s mistakes is today’s inflation, and today’s shrinking GDP.
“Unlike previous downturns, going into COVID there was no financial crisis, no housing bubble, and no other major economic problems. The economy shut down for the virus, then opened back up as circumstances allowed. There was never a need for all that stimulus because underlying conditions were good. Officials should have stuck to focusing on public health and getting help to people who needed it instead of cramming political wish-list items into trillion-dollar bills.
“Whether or not the NBER eventually declares this a recession, we face the same problems. The Federal Reserve needs to get inflation under control so people can make decisions based on stable prices. The elected branches need to rein in their deficit spending and remove obstacles to wealth creation, such as trade barriers, occupational licensing, and other stifling regulations.
“In the long run, the country needs institution-level protection against the destructive ‘flash policy’ that happens in every crisis. My colleague Wayne Crews has proposed an Abuse of Crisis Prevention Act that would do just that.”