Nearly seven years after the Great Recession ended, persistent anemic economic growth should force us to ask: since a monetary policy unprecedented in expansionary scope has failed to produce even average GDP growth, what went wrong?
During her recent testimony before the House Financial Services Committee, Federal Reserve Chair Janet Yellen touched on this when she admitted that despite having kept interest rates “at exceptionally low levels for seven years,” the Fed only achieved growth “averaging two percent or a little bit above.” Chair Yellen did not mention the Fed’s other exceptional act to stimulate growth, the creation, out of thin air, of $3.7 trillion on its balance sheet through “quantitative easing.”
To put this into perspective, this recovery’s two percent GDP growth makes it the worst recovery since World War II. Why this historically weak recovery? More than once, Chair Yellen testified that the economy is being held back by “headwinds,” like “limited access to credit for some borrowers, weak growth abroad, and significant appreciation of the dollar.”
But there is more to the story. During the hearing, I challenged Chair Yellen whether some of those headwinds disrupting the economy were “man-made,” or, to borrow a phrase, “anthropogenic.” The answer should be obvious.
These man-made headwinds have names: the Affordable Care Act (ACA), Dodd-Frank, and the Environmental Protection Agency (EPA), for starters.
Take the ACA. According to the nonpartisan Congressional Budget Office (CBO), this law will result in 2 million fewer jobs over the next decade. CBO explains that the ACA incentivizes people to work fewer hours, remain unemployed for longer, or leave the workforce altogether. Conversely, CBO found that repealing the law would encourage people to return to the labor force, spurring the economy. The ACA is also imposing negative consequences on consumers who have faced higher premiums, deductibles, and taxes.
Meanwhile, Dodd-Frank has created a cascade of regulations on community institutions that had nothing to do with the financial crisis, rendering them less able to serve their consumers. Among the promises of Dodd Frank was an end to “too big to fail” banks. As former Treasury Secretary Geithner admitted, it did not. It did, however, end free checking for many consumers and limit the availability of credit to small business. How ironic: an act that was supposed to rein in Wall Street and protect consumers ends up doing the opposite, on both counts.
Enter the EPA. This ideologically-driven agency has destroyed tens of thousands of jobs over the last decade, including over 40,000 in the coal industry alone since 2008. This carnage does not consider the multiplier effect on jobs and economic growth lost in other industries, nor the higher electricity costs for consumers and small businesses alike.
These are only a few of the more notable headwinds. Let us not forget thousands of pages of other new regulations issued during the Obama presidency, wasteful spending, and crushing national debt that continue to weigh on the economy.
It is time to stop denying that these man-made headwinds have done serious damage to the economy. And it is time to stop believing that that there isn’t a better way.
To the contrary, the Obama recovery model of massive statutory and regulatory initiatives stands in stark contrast to another model that was tried 35 years ago. That model relied not on “more Washington,” but just the opposite. Had the Obama recovery mirrored that of the 1980s, an additional 12.9 million private sector jobs would have been created.
When the economic history of this decade is written, it may be said that the Fed tried to do with monetary policy what the federal government should have done through better fiscal and regulatory policy. In other words, in order to meet its own full employment mandate, the Fed tried to compensate with unprecedented measures to counter the anti-employment policies of the Obama Administration.
This year, House Republicans will chart a new path: a bold, pro-growth agenda to build a confident and prosperous America. The agenda will reflect the truth that Americans are not subjects to be managed by a centralized bureaucracy, but partners who can help solve problems when their individual skills and talents are unleashed. It will be an agenda that turns headwinds into tailwinds to propel the economy toward a far healthier place.
I am confident that the American people hold the answer to our economic woes and are capable of creating unprecedented growth and job creation, whenever Washington is ready to get out of the way.