Not since the economic boom following 1945 have Americans seen such a rapid decline in the government’s claim on the nation’s resources – falling by a welcome $US94 billion over two years. You need to go back to the end of the Korean war to find a time when US government spending has actually declined over two years. If Republicans in the House stick to the sequester and future caps already built into current budget law, federal spending will stay at this low level for years to come.
That is good – but there is plenty more to be done.
It is clear, now, that a massive stimulus administered was an abject failure. It condemned America to the worst recovery in its history – including the 1930s. But when politicians make decisions while either panicked or drunk, the consequences are rarely edifying or attractive. US Treasury secretary Hank Paulson hyperventilating before Congress to pass his three-page stimulus bill granting him total authority to spend $US700 billion to save the economy was a sight to behold. Why, he even insisted the need was so urgent that there was no time for hearings, reviews or oversight. And passed it was – with some $US2.8 trillion additional stimulus funds over the coming few years. And what happened? American unemployment levels soared.
We’ve all see this before, but to remind ourselves.
Last word to Laffer:
The Keynesians warned that the post-Cold War spending cuts that occurred under President Clinton would cause economic contraction – instead we had an employment boom to match all booms. A, Obama’s economists revved up their economic model to justify spending an additional $US830 billion in stimulus, saying it would keep unemployment low. Without a stimulus, they said, joblessness would be 8 per cent. Instead of making things better, subsequent joblessness was higher than they predicted, peaking at 10 per cent.