David Maseng Will is a second year student at Princeton University who recently started a summer internship at Ruder Finn. Born and raised in Washington DC, he developed a passion for politics growing up in the centre of the free world, and David plans on concentrating his studies on politics and international relations.
The views expressed in this work are solely those of the author and no not in any way reflect those of Ruder Finn.
How did we get here? On Friday 29th July, the United States Commerce Department reported that the economy grew by 0.4% in the first quarter of the year, and by 1.3% in the second quarter of 2011. As the three year anniversary of the global financial meltdown approaches, a serious assessment of the subsequent recovery initiatives is warranted. When President Bill Clinton left office in 2001, the United States had a budget surplus of over $200 billion. By implementing an expensive prescription drug program, the Toxic Assets Relief Program (TARP) and waging two wars, President George Bush managed to squander the excess funds and accrue unprecedented debt. Indeed, it was the Bush administration’s warped political philosophy of impulsive, hawkish foreign policy and reckless spending which is primarily responsible for bringing down the American economy. To be his successor was not an enviable task, but one Barack Obama sought nonetheless.
When President Obama took office in 2009, Democrats controlled the executive branch and both houses of congress, including a filibuster proof super-majority in the House of Representatives. With the country shedding approximately 750,000 jobs a month, it was time, we were told, for the progressive agenda to save the nation. And so a government takeover of healthcare was initiated by the $2 trillion Patient Protection and Affordable Care Act, $862 billion was spent to stimulate the economy and an onslaught of regulations cascaded over the economy in the summer of 2010 by way of the Consumer Protection Act, which cost about $50 billion. Adding on the auto industry bailouts, the US debt skyrocketed past the $14 trillion dollar mark and through the legal borrowing limit, which was recently raised by congress. Two and a half years into his term, with the housing market still in shambles and the unemployment rate remaining sky high, it is time to recognize the failure of the progressive approach to economics.
If the stimulus package was not implemented, the nation was warned, the unemployment rate might rise to 8%. Well, after the bill’s passage, joblessness soared past 10% and now rests stubbornly at 9.2%. Obviously unable to cite substantive statistics, the Obama administration has attempted to defend its failed attempt at revitalization by cryptically painting an apocalyptic alternative reality void of the Recovery Act. The stimulus package averted another great depression. That is the feeble defence the administration has been reduced to. To swat away such senseless fear mongering, note that when the recession was officially declared over in June 2009, only 7.7% of the stimulus had been spent. Therefore, at best, the stimulus was irrelevant to the recovery, and more likely has hurt the nation’s progress by adding greatly to the deficit.
Most likely the greatest policy hindrance to job creation implemented by the administration is the Consumer Protection act. The positive impact of some added critical safeguards is dampened by the tidal wave of new regulations which will greatly chill job creation. Running conversely to the assertions of the act’s advocates is the reality that the law makes future crises more likely. Hal Scott, a professor of international financial systems at Harvard Law School, elucidates the negative impacts in a 19 July 2011 Financial Times op-ed marking the one year anniversary of the law’s passage. He states, “The Fed can no longer lend to individual companies, as it did to AIG…The treasury also can no longer use its economic stabilisation fund to guarantee money market funds. As a result, at a whiff of a new crisis, liquidity will dry up in a flash.” It becomes clear how the world cannot afford the progressive economic agenda, given the stifling effects of over-regulation.
To comprehend the detrimental nature of progressive policies, and to advocate the immediate implementation of conservative economic initiatives, Americans need not look farther than across the Atlantic. Coinciding with strict austerity, the pace of growth in the UK was anaemic, at 0.2%, in the second quarter of 2011. The figure has falsely been attributed to the shift of the UK government to living within its means. However, not only is Britain not as weak as the data might suggest, given that the economy has been hampered by natural disasters around the globe, and a pick-up in investor spending is expected.
The true culprits of the UK’s flagging economy are burdensome regulations on small businesses, as well as huge taxes on higher income earners and corporations. Britain is admirably taking the first of what must be many steps in cutting senseless regulations in its adoption of recommendations made by The Red Tape Commission. On taxes, to any sensible conservative, or moderate liberal for that matter, the idea of taxing job creators at 50% is incomprehensible.
It sure is tempting to dissemblingly label those earning enough to qualify for the 50% tax rate bracket as members of an idle echelon of billionaires, but such trite class warfare doesn’t pass the tests of decency or reality. In truth, government may impose the policy on people making as little as £150,000 a year. Not to diminish the value of such a grand sum, but the number dwindles when sapped by such a steep rate, and is further reduced by costs of business and living. For at Princeton University, the school which I attend back in America, and at numerous other academic institutions with generous financial aid policies, the family of a student making roughly the dollar equivalent to £150,000 a year receives financial aid. So as nice as it may be to picture this class of tax over-payers as flying far above the plight of the commoner in private jets, the reality is that this government theft of wealth reaches down to small businesses as well.
Free trade agreements signed between the UK and China, as well as by America with South Korea and Colombia, will no doubt boost the economies of all nations involved. For international competition and engagement, along with soft power pushes for social reform means free trade makes economic and moral sense in the eyes of conservatives. Unbridling the world’s innovators to unleash their inspiration is to truly stimulate the global economy. In the United States, George Bush hurt the country with his perversion of conservative principles. Next, Obama had all the tools and political capital he thought he needed, and his policies still failed to make the country better. In great powers like The United States and Britain, adopting sensible tax policy, as well as constructing a lean and nimble consumer protection network will be critical to each nation’s economic recovery.