Can more government “heal the economy”?

posted at 1:21 pm on June 11, 2012 by Ed Morrissey

So says E. J. Dionne of the Washington Post, who wonders why more Democrats aren’t saying the same thing that Barack Obama did last Friday:

Why don’t Democrats just say it? They really believe in active government and think it does good and valuable things. One of those valuable things is that government creates jobs — yes, really — and also the conditions under which more jobs can be created.

You probably read that and thought: But don’t Democrats and liberals say this all the time? Actually, the answer is no. It’s Republicans and conservatives who usually say that Democrats and liberals believe in government. Progressive politicians often respond by apologizing for their view of government, or qualifying it, or shifting as fast as the speed of light from mumbled support for government to robust affirmations of their faith in the private sector.

Dionne makes almost no attempt to prove this idea, however.  He offers unsubstantiated claims that Alexander Hamilton and Abraham Lincoln reads the interstate commerce clause in the same way FDR did, and wanted “creative” federal government (an argument which, to be fair, he makes at greater length in his book Our Divided Political Heart).  He doesn’t mention any solid economic proof of his theory that more government produces better economic outcomes except a statement from CBO director Doug Elmendorf that economists believe joblessness would have been worse without the stimulus, which is not just damning with faint praise but also not quite the same argument.

Dionne concludes:

Opposition to government isn’t the solution. Opposition to government was and remains the problem. It is past time that we affirm government’s ability to heal the economy, and its responsibility for doing so.

As it happens, we can test this theory.  The Minneapolis Federal Reserve has a handy tool for comparing the trajectory of post-WWII recessions and recoveries in terms of GDP and job creation.  We can all agree that Obama implemented the most aggressive strategy for doing what Dionne proposes in that period; in fact, government as a share of GDP is at a post-WWII high.  That allows us to test the success of that strategy against those which focused on the private sector to see what succeeded more and faster.  Let’s first compare from the point of recovery on jobs:

The red line is the Obama recovery, which started in June 2009, four months after the passage of the $800 billion stimulus bill.  It’s the second-worst recovery in modern history in job growth, only ahead of the 2001 recovery where unemployment didn’t drop nearly as deeply. Next, let’s look at GDP growth:

The Obama recovery comes in dead last.

Note that I’ve left out the 1980 recession as it double-dipped into the 1981 recession, and which fully occurred in Ronald Reagan’s term.  The recovery of jobs from the 1981 recession was in fact the third-fastest recovery since World War II; only 1948 and 1957 beat it.  The recovery in GDP in 1981 was the second-fastest in that period.  The 1981 recovery came from economic policies that focused on enabling the private sector, rather than assuming that government could “heal” an economy through central control.

The greatest lesson of the 20th century, at least in economics, was the triumph of F. A. Hayek and the exposure of the fallacy of central control of economies.  The only people who still think that government can “heal” economies through central control and planning are the true believers, for whom evidence and experience means little or nothing.

Update: The proper argument here is the difference in opportunity between the two approaches.  The US economy has added jobs in the past three years since the recovery, obviously — about 3.1 million of them.  However, as I repeatedly point out, that averages out to 86,300 a month, far below the 125K-150K level needed to keep up with population growth.  The opportunity cost between the Reagan and Obama approaches has been enormous, and represents a lost opportunity to avoid years of pain and social ills.


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No, it can’t…

OmahaConservative on June 11, 2012 at 1:22 PM

Want government to “heal the economy”? Start by getting government out of the damn way.

teke184 on June 11, 2012 at 1:24 PM

Administration hockeystick graphs will attempt to hide the decline, no doubt.

steebo77 on June 11, 2012 at 1:25 PM

I’d be interested in seeing how the great depressions in 1920-1921 and 1929 compare.

The Rogue Tomato on June 11, 2012 at 1:26 PM

Of course it can, don’t be silly.
- Any lib

tommer74 on June 11, 2012 at 1:26 PM

He doesn’t mention any solid economic proof of his theory

Proof? I don’t need no steenkin’ proof Morrissey!

-E. J. Dionne

Flora Duh on June 11, 2012 at 1:27 PM

The only people who still think that government can “heal” economies through central control and planning are the true believers, for whom evidence and experience means little or nothing.

Ed’s right. This is a faith based argument. Why are liberals and Keynesians so anti-evidence???

ted c on June 11, 2012 at 1:27 PM

The government could perhaps help (disputable), but when the government is led by the sort of far-left, unqualified and inexperienced know-nothings Dionne supports, no it definitely cannot help the private sector grow jobs.

NoDonkey on June 11, 2012 at 1:28 PM

Salt is an essential nutrient. Without salt in our bodies, we would die.

So I think E.J. is saying: let’s all eat four pounds of salt a day.

Bat Chain Puller on June 11, 2012 at 1:29 PM

I have a choice:
1) Graphs-data
2) Historical comparisons
3) Feelings

I always pick #3.

Sincerely,
Ima Lib

hillsoftx on June 11, 2012 at 1:29 PM

Anyone ever seen B.J. Dionne and Paul Krugman in the same place at the same time?

bayam?

Del Dolemonte on June 11, 2012 at 1:29 PM

IMO, this is what bho ran on last time for election(if those listening would hear) and since elected! He is seeing to it our economy has gone in the krapper ever since with his mandates/agencies/tax policies/etc.! More government and massive tax increase will not get it!
L

letget on June 11, 2012 at 1:30 PM

Why don’t Democrats just say it?

Simple answer.

Obama has, how’s that working out for him?

Maybe the Dems should tweet it.

fogw on June 11, 2012 at 1:32 PM

…when I’m drunk…more booze doesn’t make me drunker…right.

KOOLAID2 on June 11, 2012 at 1:35 PM

Almost nothing will heal The 0 Economy™. Short of putting a silver bullet in it. Time to start paying it off yet?

Bmore on June 11, 2012 at 1:35 PM

We added 3.2 million new H.S. grads last month.

We are not building Taco Bells fast enough to absorb the tallent pool.

seven on June 11, 2012 at 1:36 PM

The greatest lesson of the 20th century, at least in economics, was the triumph of F. A. Hayek and the exposure of the fallacy of central control of economies.

And the less is evident in U.S. cities and states and world nations who are recovering. Central planning, tax and spend, does not work! How can anyone still believe it?

Am I missing something? Is there a top down economy that works?

PattyJ on June 11, 2012 at 1:37 PM

Speaking of the economy!

Axelrod on Romney: “We’ve seen this movie before”
June 11 2012
*************

David Axelrod, senior adviser to the Obama campaign, talks to Charlie Rose and Erica Hill about the economy, the presidential campaign, and recent national security leaks.

http://www.cbsnews.com/video/watch/?id=7411268n%26tag=mg;cbsthismorning

canopfor on June 11, 2012 at 1:38 PM

Maybe its just a problem with red they have.

Bmore on June 11, 2012 at 1:38 PM

…when I’m drunk…more booze doesn’t make me drunker…right.

KOOLAID2 on June 11, 2012 at 1:35 PM

Nope…just wasting money at that point..

Electrongod on June 11, 2012 at 1:38 PM

I have a shovel-ready job for E. J. Dionne:

1. Dig a ditch.
2. Throw dirt into ditch.
3. Repeat until fatigue sets in.

In this way, E. J. Dionne will be more productive than writing political essays.

Steve Z on June 11, 2012 at 1:40 PM

The only time this Keynesian nonsense even appeared to help increase demand was back in the days when the US had essentially a world monopoly on manufacturing.

Liberals either do not understand, or are too blind to see, that those days are gone, and that we cannot afford any Keynesian crap, which horribly inflates labor costs. Corporations will produce overseas rather than pay these exhorbitant labor costs.

matthew8787 on June 11, 2012 at 1:41 PM

Doing the same thing over and over again, expecting different results?

And when the money runs out?

[What is it about being just like Zimbabwe that has this Administration so fascinated?]

coldwarrior on June 11, 2012 at 1:42 PM

DEMOCRATS and LIBERALS. Building a bridge to the 1930′s.

Rixon on June 11, 2012 at 1:45 PM

Socialist dictatorship sucks, unless you’re the dictator. With socialism, I guess you could say that the private international-money-laundering sector will be doing fine.

RBMN on June 11, 2012 at 1:47 PM

A private job is always better for the economy than a government job.

A government job is always dependent on taxpayer money to fund it.

A private job is dependent on providing the market a product or service that provides enough revenue to create the private job.

Private jobs create wealth, government jobs take wealth.

albill on June 11, 2012 at 1:48 PM

Government is the problem.

Axion on June 11, 2012 at 1:49 PM

E. J. needs to be strapped into a chair with his eyes forced open, (ala A Clockwork Orange) to make him watch Milton Friedman videos until he gets it.

Deano1952 on June 11, 2012 at 1:49 PM

In this way, E. J. Dionne will be more productive than writing political essays.

Steve Z on June 11, 2012 at 1:40 PM

Certainly would be a better read.

Bmore on June 11, 2012 at 1:49 PM

And, Twinkle Toes Dionne clicked the heels of his ruby shoes together and said:

“There’s no place like Washington, DC. There’s no place like Washington, DC.”

Resist We Much on June 11, 2012 at 1:50 PM

I know a way the government can create jobs….mandatory military service for all 18-21 year olds.

Once you complete your enlistment, you will be allowed to vote, drink, and have all the “privileges” of an adult in our society.

Renee on June 11, 2012 at 1:51 PM

EJ Dionne is a smart person, but he is a glorified social worker with a B.A. in Social Studies and a PHD in Sociology. With respect, he has no idea what he is talking about, so no need to work yourself into a lather debunking his Paul Krugman regurgitations.

http://www.fiscalwars.wordpress.com

stout77 on June 11, 2012 at 1:51 PM

stout77 on June 11, 2012 at 1:51 PM

I always look to sociologists for explanations of complex economic issues.

a capella on June 11, 2012 at 1:56 PM

E. J. Dionne of the Washington Post

I wonder what the EJ stands for? Ernest Julio?

Because E. J. Dionne is to journalism what Ernest and Julio Gallo are to fine wine.

UltimateBob on June 11, 2012 at 1:57 PM

Sylvester Stallone to Bad Guy in “COBRA”:

“You’re the disease, I’m the cure!”

Government to Jobs Market in Real Life:

“You’re the cure, I’m the disease!”

pilamaye on June 11, 2012 at 1:59 PM

Eugene Joseph…

OmahaConservative on June 11, 2012 at 1:59 PM

EJ Dionne is a smart person, but he is a glorified social worker with a B.A. in Social Studies and a PHD in Sociology. With respect, he has no idea what he is talking about, so no need to work yourself into a lather debunking his Paul Krugman regurgitations.

stout77 on June 11, 2012 at 1:51 PM

So what you’re saying is that he is an expert speaking outside his extremely narrow field of expertise. I’m -shocked- that a Leftist would do that.

visions on June 11, 2012 at 2:00 PM

I know a way the government can create jobs….mandatory military service for all 18-21 year olds.

Once you complete your enlistment, you will be allowed to vote, drink, and have all the “privileges” of an adult in our society.

Renee on June 11, 2012 at 1:51 PM

Any man or woman that is risking their lives fighting America’s enemies is old enough to drink and/or vote.

And your plan produces zero private sector jobs and that’s where the revenue is.

But I agree that we may not be able to continue with a fully voluntary military forever into the future. But for the time being, it seems to be working.

Axion on June 11, 2012 at 2:00 PM

I was listening to Byron York on Bill Bennett this morning and he brought up this article. We probably read it when it was written but this is a good time to revisit. Everyone will be glad to know that there are apparently a few jobs available for all those strange degrees we are always laughing at. Not enough to justify getting the degree mind you.

http://www.sfexaminer.com/blogs/beltway-confidential/2011/07/debt-talks-continue-feds-are-hiring-and-never-firing

Cindy Munford on June 11, 2012 at 2:02 PM

Carney being a real d-bag at today’s presser.

@jeneps Carney on “doing fine”: “You all ought to do your jobs and report on content” #whbrief

@ShawnaNBCNews Carney to @edhenryTV today: “I appreciate the unusual cherry-picking of statistics there Ed.” #snarkatthebriefing

Flora Duh on June 11, 2012 at 2:02 PM

Those charts are clearly raaaaaacist!

AZCoyote on June 11, 2012 at 2:03 PM

One of those valuable things is that government creates jobs — yes, really — and also the conditions under which more jobs can be created.

What a load of bovine excrement. And just WHO PAYS for those government jobs? Given that government SUCKS MONEY OUT of the economy, how does that CREATE a condition where more jobs in the private sector will be created?

Dionne has his head so far up his anal orifice, it’s surprising he can still breathe.

GarandFan on June 11, 2012 at 2:03 PM

What EJ and libs don’t grasp is this basic thing:

With how much it costs government to spend -

1) They take $1 out of the economy, now or future.
2) After bureaucratic red tape to collect it, process it, get it to the spending agency, 67 cents gets to agency. The other .33 primarily goes to government employees, who then have 25% of that back in taxes. So far 24 cents gets to economy.
3) Of the .67 cents that makes it to local government, again 25% goes right back in taxes on the people processing it and getting paid with it. 48 cents is now back in the economy.
4) However, the places that 48 cents gets spend have had to raise prices because of higher taxes, more regulations, etc., so it is only as effective at 45 cents.

So in total that dollar taken ends up adding 69 cents to the economy. If that dollar stayed with the taxpayer, after taxes, it has one dollar worth of power.

Which is why regulation is even more sinister. That money helps nobody but the government workers that collect the fees and the paper mills that produce the massive amount of paper to comply.

Government spending can create jobs, but not net jobs. Every .69 jobs created by government costs 1 private sector job, or close to it, now or later.

PastorJon on June 11, 2012 at 2:07 PM

What is it with these so-called super-smart people? I get the feeling they pulled down their intro to economic textbook from their freshman year of college, dusted off their copy of Das Capital, and cut and pasted new legislation using FDR’s templates.

It is absurd to think you can buy your way out of recession. That $$5T added by the jug eared Kenyan should have taught these bastards at least that much but they insist in trebling down on stupid an Dionne is just about as close to a functional moron as you can find in DC.

Happy Nomad on June 11, 2012 at 2:07 PM

Ed’s right. This is a faith based argument. Why are liberals and Keynesians so anti-evidence???

ted c on June 11, 2012 at 1:27 PM

Because math is hard, science is harder and research is hardest of all.

But then that was really a rhetorical question.

chemman on June 11, 2012 at 2:11 PM

I wonder what the EJ stands for? Ernest Julio?

Because E. J. Dionne is to journalism what Ernest and Julio Gallo are to fine wine.

UltimateBob on June 11, 2012 at 1:57 PM

Eugene is the E.

http://en.wikipedia.org/wiki/E._J._Dionne

He was apparently named after his old man.

Del Dolemonte on June 11, 2012 at 2:12 PM

Opposition to government isn’t the solution. Opposition to government was and remains the problem.

See also: We are form the government and we are here to help you.

(Be afraid….)

apostic on June 11, 2012 at 2:12 PM

This isn’t about “the economy” to Obama — it’s about his goals to remake the U.S.A. into a place he wants, which is another place that most Americans wouldn’t want or recognize but which provides, ideally, rewards to Obama and others like him who need a royal placement “ruling” others. Obama has a God complex, if not, perhaps ‘only’ one called a “ruler,” grandiose above others, able to “heal” and “work wonders” and be some sort of miraculous mover by the sheer phenomenon of their perceived grandiosity. God complex, whatever.

If he cared, actually, about “the economy,” he wouldn’t have taken most of the political positions he has throughout his life. But today, he perceives “the economy” as an issue he has to make an issue of because it’s a stepping stone to maintaining what he presumes is his grand position, with the emphasis on the word “grand”.

I still think, psychologically, Obama just never had a father — no ultimate authority rendering love and protection and decisions about his survival and development, and that’s the source of his current personality. So he’s now moved on to “government…healing” “the economy”…in other words, “where’s my Dad to ease my needs.”

Lourdes on June 11, 2012 at 2:17 PM

Sylvester Stallone to Bad Guy in “COBRA”:

“You’re the disease, I’m the cure!”

Government to Jobs Market in Real Life:

“You’re the cure, I’m the disease!”

pilamaye on June 11, 2012 at 1:59 PM

..[The New] Romney: “Murdock, I’m comin’ to get you!

The War Planner on June 11, 2012 at 2:20 PM

About, also, what I just posted above, I note that the LeftMedia is now publishing a series of childhood photos of “Barry Obama” with commentary noting how “cute” he was.

Part of that same game, the big dad/father image of “government” and who doesn’t want their “dad” to be well and enjoy a comfy Barkolounger with paid vacations and a padded series of other benefits that his “dependents” can enjoy? “It takes a village,” remember that? Today it’s “the community”…part of the Left’s collectivism to deliver a mud hut in every yard and a food basket with “acceptable” things to eat because everything else is off limits. “It takes a community” with a Dad for All, that’s Obama’s and the DNC’s current fairy tale and political propaganda: who can say no to “free” and “happiness” and “community” and “dad”?

I can understand how that would transpire into a religious experience. And apparently so do the Democrats because that’s what they’re making out of that with “government to the rescue”.

Lourdes on June 11, 2012 at 2:24 PM

EJ Dionne is a smart person, but he is a glorified social worker with a B.A. in Social Studies and a PHD in Sociology. With respect, he has no idea what he is talking about, so no need to work yourself into a lather debunking his Paul Krugman regurgitations.

stout77 on June 11, 2012 at 1:51 PM

So what you’re saying is that he is an expert speaking outside his extremely narrow field of expertise. I’m -shocked- that a Leftist would do that.

visions on June 11, 2012 at 2:00 PM

Thomas Sowell elaborated on exactly that phenomenon in a good interview I saw recently with the Hoover Institution:

http://www.humanevents.com/2012/05/08/uncommon-knowledge-thomas-sowell-on-the-problem-with-intellectuals/

Dionne has about as much to contribute to this particular matter as, say, Whoopi Goldberg or George Clooney. They get paid a lot of money to play dress-up and make-believe, maybe they even pretended to be an evil capitalist on TV – ergo we should shut up and listen when they talk about entitlement spending and deficit reduction?

This is not a knock on Dionne necessarily, either, as not one out of the 80-some-odd economists used to project job growth for May erred on the low side. The dismal science is already futile enough without a sociologist wading into it.

stout77 on June 11, 2012 at 2:24 PM

I wonder what the EJ stands for? Ernest Julio?

Because E. J. Dionne is to journalism what Ernest and Julio Gallo are to fine wine.

UltimateBob on June 11, 2012 at 1:57 PM

LOL – I was thinking more along the lines of a 2-liter box of Franzia.

stout77 on June 11, 2012 at 2:26 PM

Duh! NO!

The government does not have enough money.
Businesses don’t have enough money to hire people.
The unemployed don’t have enough money.

We need more wealth (money).

All wealth is created in the mining, manufacturing and agriculture. All of these are in the private sector.

Government consumes wealth, not create it.

Government cannot ever lead the economy out of recession because you can’t get more of anything by consuming it.

The Rock on June 11, 2012 at 2:28 PM

I can’t be overdrawn, I still have some checks.

Right, EJ, you economic illiterate moron?

ICanSeeNovFromMyHouse on June 11, 2012 at 2:28 PM

CBC: ‘Cool’ racist term for Obama…

Resist We Much on June 11, 2012 at 2:40 PM

Why aren’t other Democrats riding this wagon, he wonders?

Base survival instinct.

A fine enough BS filter to weed out the crap.

Wanting to get elected.

The little things in life, you know?

ajacksonian on June 11, 2012 at 2:40 PM

Opposition to government isn’t the solution. Opposition to government was and remains the problem. It is past time that we affirm government’s ability to heal the economy, and its responsibility for doing so.

This is why the left should never ever be allowed in power. They are completely clueless about how things actually work. They operate on their wittle feelings that have absolutely nothing to do with how the machinery of economics works.

All their feelings do to the economy is foul it up.

dogsoldier on June 11, 2012 at 2:43 PM

IN terms of GDP and unemployment rate, where would the US be today had Mr. Obama used the $900B stimulus funds for an across the board reduction to personal and corporate tax rates, plus an incentive to move jobs back from foreign shores?

My guess is:

2.7% GDP
6.9% unemployent

….and a 2nd Obama term as POTUS.

DrW on June 11, 2012 at 2:51 PM

I can’t be overdrawn, I still have some checks.

Right, EJ, you economic illiterate moron?

ICanSeeNovFromMyHouse on June 11, 2012 at 2:28 PM

Heh. But more like, “I can’t be out of money …”

Lime in the Coconut on June 11, 2012 at 2:57 PM

Unfortunately they apparently don’t teach the economic concept of “Dead Weight Loss” at Harvard’s Kennedy School… and certainly not at any law school…

phreshone on June 11, 2012 at 2:58 PM

The greatest lesson of the 20th century, at least in economics, was the triumph of F. A. Hayek and the exposure of the fallacy of central control of economies.

And the less is evident in U.S. cities and states and world nations who are recovering. Central planning, tax and spend, does not work! How can anyone still believe it?

Am I missing something? Is there a top down economy that works?

PattyJ on June 11, 2012 at 1:37 PM

No, not even in environments totally created and controlled by human beings, such as online role-playing games. Austrian economics rules there as well.

ebrown2 on June 11, 2012 at 3:01 PM

Lourdes on June 11, 2012 at 2:24 PM

Hide the pictures of Malcolm X, quick!

slickwillie2001 on June 11, 2012 at 3:23 PM

NET WORTH OF AMERICAN FAMILY FALLS 40% IN 3 YEARS

http://www.washingtonpost.com/business/economy/fed-americans-wealth-dropped-40-percent/2012/06/11/gJQAlIsCVV_story.html

N.Y. Democrats Poised to Nominate Former Black Panther, Anti-Israel, Racist Radical for Congress

http://www.weeklystandard.com/blogs/n-y-democrats-may-nominate-anti-israel-radical-congress_646925.html

Resist We Much on June 11, 2012 at 3:26 PM

Here’s a list of federal agencies that manufacture nothing, grow nothing, actually do nothing that we can tax and build the treasury. Every one of these is funded by our tax dollars and is probably a good hiding place for federal employees that try like the devil to justify their paycheck and see if you can read these aloud without laughing, it’s really pitiful. http://www.usa.gov/directory/federal/index.shtml

mixplix on June 11, 2012 at 3:49 PM

Yes… just as more butt-sex will stop the spread of AIDS

deedtrader on June 11, 2012 at 3:50 PM

IN terms of GDP and unemployment rate, where would the US be today had Mr. Obama used the $900B stimulus funds for an across the board reduction to personal and corporate tax rates, plus an incentive to move jobs back from foreign shores?

My guess is:

2.7% GDP
6.9% unemployent

….and a 2nd Obama term as POTUS.

DrW on June 11, 2012 at 2:51 PM

This.

0bama is just too stupid for his own good.

UltimateBob on June 11, 2012 at 3:53 PM

I’d be interested in seeing how the great depressions in 1920-1921 and 1929 compare.

The Rogue Tomato on June 11, 2012 at 1:26 PM

The Forgotten Depression of the 20th Century

http://predicthistunpredictpast.blogspot.com/2012/06/forgotten-depression-of-20th-century.html

If You Want Obamavilles, Repeat What Hoover Did

http://predicthistunpredictpast.blogspot.com/2012/04/if-you-want-obamavilles-repeat-what.html

Great Myths of the Great Depression

http://predicthistunpredictpast.blogspot.com/2011/12/great-myths-of-great-depression.html

Resist We Much on June 11, 2012 at 4:17 PM

Of course Mr. Dionne fails to see the difference between the productive sector of the economy and the parasitic sector of the economy. One builds and creates responding to people’s needs. The other takes forcibly and then sets money on fire before flushing it down the toilet. (I don’t need to clarify which is which, right?)

One government job does not equal one private sector job. Why is that so hard to understand?

Pablo Snooze on June 11, 2012 at 5:50 PM

Wiser government, maybe, but not simply more of the same.

That would be the political equivalent of another surge in Afcrapistan without a change of the ROE’s or the end goal. In other words, not one bit helpful in the long run.

MelonCollie on June 11, 2012 at 7:49 PM

My plan (assuming I was Dionne) to solve our economic woes:

1. US Govt print $5 trillion, with right hand of fed govt loaning it to the left hand of fed govt.

2. Give the $$$$$$ to the states.

3. Tell the states to give all unemployed $50,000/yr for a make-work job. Half can dig holes, half can fill them in.

4. Profit!

Isn’t that what Obama was saying last Friday?

waelse1 on June 11, 2012 at 8:04 PM