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Sticks and stones may break our bones, but there’s good reason to believe words are destroying economic growth.
The usual vital signs we look at to judge economic health are all over the place and don’t exactly paint a positive picture. The unemployment rate is down, but a lot, if not the majority, of that is being caused by a shrinking labor force participation rate. The economy is technically growing, but the growth rates are abysmal. The stock market is way up, at record levels, but much of that is likely being caused by the near-zero interest rates spurred on by the Fed. In effect, we’re not witnessing a surging stock market; we’re just looking at the inflation we expected from easy money policies manifesting itself on Wall Street instead of Main Street. Forget the formal indicators though. The American people are telling us, in survey after survey, that things haven’t improved much, if at all, from the “Great Recession” of 2007-2008. All in all, we’re far from out of the woods. What gives?
There have been all sorts of attempts at explanations. There are the usual partisan objections to specific policies. Then there are the concerns about specific sectors of the economy. Then there are downright weak excuses for sluggish economic growth such as “this winter was pretty cold.” Seriously. There may be a nugget of truth, or a grain for that last one, to all of these things, but most of these discussions seem to ignore the fundamental fact that our economy is incomprehensibly enormous and contains trillions of moving parts. The fact is that little tweaks here and there, plus milder weather, aren’t going to help much. But that hasn’t stopped our politicians, especially our current president, from trying. And what we may be overlooking as we try to identify and solve the relatively minute issues is the biggest problem altogether: Our politicians’ mouths.
One major reason why the economy of the United States has been able to grow to the extent it has and enrich millions of people here and abroad is because of stable rule of law. Renowned economist Ludwig Von Mises explained it best when he said, “Economic action demands stable conditions.”
The British Common Law system inherited by America has granted an incredible level of stability. Individuals and businesses have been able to plan and invest with high levels of certainty and confidence that contracts will be enforced and private property will be protected from the violence of government and others.
Then we elected President Obama on the vague platform of “Hope and Change,” which happen to be the precise opposites of what businesses do and look for when making investments.
Most voters will tell you that not many things have changed since 2008, as far as they’re concerned. Yet just because the average American doesn’t feel like they’re doing any better off doesn’t mean things aren’t radically different. It seems like everyday we’re hearing about new rules and regulations being handed down from the Obama administration. From ObamaCare to the EPA, the rules governing economic activity in the United States seem to be in a perpetual state of flux. Thousands upon thousands of new pages are added to the rulebook annually. Economists are warning of higher energy costs and protesters are in the streets demanding higher government-enforced wages and benefits. Meanwhile, the President and his ideological allies have taken to the soapbox to demonize private industry. From President Obama’s infamous “you didn’t build that” line to Democratic Socialist Senator and presidential candidate Bernie Sanders telling packed arenas he wants to raise the minimum wage to $15 an hour and jack the top individual tax rate to 90 percent, how on Earth are businesses supposed to feel confident enough to make long-term investments, including hiring more people and paying them more?
Successful business owners aren’t stupid or ignorant. They pay attention to the news and they can read the writing on the wall, hence their success. How can we expect our economy to grow when all of the people primarily responsible for initiating that growth are being threatened with higher costs on their existing investments?
The tone of our current and prospective elected officials is a real problem and one that has plagued us before. During the Great Depression, FDR used his famous fireside chats and other speeches to frequently demonize the private sector and blame businessmen for the nation’s economic woes. Not only were government and Federal Reserve policies directly responsible for initiating the Great Depression, a strong case can be made, despite the popular sentiment otherwise, that FDR’s policies and rhetoric caused the initial economic contraction to turn into the prolonged suffering that marked the era. Surveys at the time are compelling evidence of this:
“Public opinion polls in March and May 1939 asked whether the attitude of the Roosevelt administration toward business was delaying recovery, and 54 and 53 percent, respectively, said yes ... Fifty-six percent believed that in ten years there would be more government control of business … Sixty-five percent of executives surveyed thought that the Roosevelt administration policies had so affected business confidence that the recovery had been seriously held back.”
History reflects the other side of this dynamic as well. Ronald Reagan was famously optimistic about the strength of American entrepreneurship and blamed the government for constantly getting in the way. The economy roared back under his watch, despite some less-than-conservative spending habits on the part of that administration. Calvin Coolidge, president during the Roaring Twenties, is known for being a man with very little to say other than “no” to the expansion of government and new laws and rules.
American voters are right to be frustrated during this election cycle and are naturally drawn to politicians with bold words and visionary plans. Unfortunately, this is likely counterproductive. Our economy requires a certain level of political and legal stability, but our politicians’ loose lips may ultimately be sinking the ship.Published in