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December 2012 - Volume 17, Number 4


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To Grow the Economy, We Must Shrink President Obama's Big Government

by Alison Acosta Fraser

Daunting issues await lawmakers returning to Washington: the fiscal cliff; unprecedented spending; soaring debt. And there’s no easy fix in sight. Before tackling these issues, lawmakers should take a deep breath and assess the nation’s economic health.


The economy is growing, but nowhere near as fast as it needs to be. Just ask the 23 million Americans who have no work, can only find part-time jobs, or have given up and stopped looking.


The unemployment rate remains stubbornly high — and would be far higher had not millions of would-be workers given up looking altogether. Job creation is lackluster, averaging about 157,000 jobs per month so far in 2012, about the same as last year. And the economy is growing at a sluggish pace, with gross domestic product, or GDP, increasing by an annualized rate of only 1.3 percent in the 2nd quarter.


Each of these measures should be higher at this point in a recovery. GDP should be growing at more like 3.5 percent. To bring down the unemployment rate, job growth should be north of 200,000 monthly. (We need 125,000 net new jobs just to keep pace with a growing population.) Instead, we have the weakest recovery since 1945, one dragging along nearly three times slower than the 1981 recovery.


Over at the Federal Reserve, Chairman Ben Bernanke’s monetary machinations — churning out low interest rates and engaging in serial “quantitative easing” — are more proof of a floundering economy.


President Obama’s machinations have fared no better. His first act — a massive stimulus package, complete with “shovel ready” infrastructure projects — was supposed to jolt the economy and get people back to work.


Instead, unemployment continued to shoot up and Americans were left with the $830 billion tab. The stimulus failed because government can’t create purchasing power out of thin air. It must first tax it or borrow it out of the private economy, leaving that much less for the private sector to spend.


Compounding the stimulus debacle was a massive regulatory initiative that crimped business activity. In the last three years, 106 major new regulations have saddled the private sector with additional annual costs estimated to run $46 billion per year, according to research by the Heritage Foundation.


Like excessive taxation, regulatory excesses harm the economy. They hamstring investment and innovation and siphon off valuable resources that could be used to create jobs or improve wages.


Lawmakers must change course, reversing the harm inflicted by these big-government policies. Here’s how:


First, stop Taxmageddon — the massive tax increases coming on January 1, when the Bush-era tax cuts and other tax policies expire and new tax hikes from Obamacare kick in. Blocking scheduled tax hikes on work and capital will help heal business and investment uncertainty and get people back to work. That’s just as true for a middle-income

senior with dividend-paying stocks as it is for a wealthy venture capitalist.


Next, stop and reverse the rising tide of unnecessary red tape. This includes ending the Environmental Protection Agency’s tireless crusade against global warming. It means repealing the new Consumer Financial Protection Bureau, an unaccountable entity with unlimited power over every form of consumer credit, and the “Volker rule” to restrict bank investment — both spawned by the “Dodd-Frank” Wall Street reform law of 2012. And, of course, Obamacare must be repealed.


These harmful government interventions into what should be private markets have created vast uncertainty for employers, investors, and families.


EPA regulations, for instance, are highly unlikely to affect global warming, but they will almost certainly cost consumers when they go to buy a car or turn on the lights. They will also likely drive business activity offshore. Dodd-Frank will do little to prevent “too big to fail” financial institutions. But already it’s making it harder to get a mortgage and more expensive to do business with your bank. And Obamacare will likely drive the nation deeper into debt while delivering substandard health care.


Congress and the President must get serious about putting the nation’s fiscal house in order. Our rapidly mounting debt reflects a spending problem. The answer is not higher taxes. Indeed, the threat of future tax hikes and burgeoning debt is helping hold back growth.


Finally, entitlement programs must be put on fiscally sound footing and strengthened for future generations. Social Security must be tackled, so it is affordable and — unlike today — protects seniors against living their retirement in poverty. We are living longer, so the retirement age should be gradually increased.


As for Medicare and Medicaid, rather than have government bureaucrats micromanage half of all health care in America, we should move to a model where the government helps pay for premiums of private insurance. That approach puts patients and doctors in charge of health-care decisions. Bringing these programs under control is vital to reining in spending, so that we can stabilize and ultimately reduce the national debt.


Excessive federal spending, regulation, and debt only exacerbate our economic woes. To grow the economy, we need to shrink government.


Alison Acosta Fraser is Director of the Roe Institute of Economic Policy Studies at The Heritage Foundation. This article appeared on November 5, 2012 at The Heritage Foundation's website, It originally appeared in The Christian Science Monitor and is reprinted with permission The Heritage Foundation.


LIMITS is one of our quarterly membership newsletters, arriving in March, June, September, and December. It consists of short articles and essays on protection of human rights by limiting the powers of government.


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