Wednesday, October 13, 2010

"Fixing" our Economy

The crucial question for the next year is how do we achieve economic recovery. The current administration has been telling us for some time that we are already in recovery, and that if we are just patient and willing to re-elect their party, we will see the benefits of their policies. The problem is there are no real signs of recovery, with unemployment still very high and the housing market abysmally low. What concerns me most is that I don't see any "engine" of recovery.

In the past, certain key industries have pulled us out of recessions. Whether it was the auto industry, personal computers and the internet, or the housing market, the recession ended when these products and services became ultra attractive due to pricing, innovation, and low interest rates. All of those drivers are unavailable this time; they are all subject to the same lack of demand that plagues the rest of the economy. So what will pull us out of this mess?

According to the President and his progressive advisors, the drivers of recovery are green jobs and re-building infrastructure. Many to the left of the President, want him to go further and establish a new WPA of government building and employment projects. What they don't realize is that much has changed since the 1930's; the restrictions, work rules, and environmental regulations of today prevent even the government from hiring people off the street to build dams, bridges, and libraries. What used to take a few months to plan and initiate now takes years. The President admitted as much when he declared, "there are no shovel-ready projects." He is right. Even the progressive agenda is subject to the crisis of a bloated government.

So what about green jobs - wind, solar, renewable energy? If we are willing to be honest, we will have to admit that these alternatives to coal and petroleum are not yet viable. The only way that we can go to these options is through subsidies. We have been subsidizing wind generation and solar power since the late 70's with little or nothing to show for it. After decades of government subsidy, we spent six billion dollars to enable American ethanol production and to prevent sugarcane ethanol from being imported from Brazil. In other words, the idea that these "green" industries may be drivers of growth in our economy is not even a pipe dream, it is a complete fantasy.

The central question is how do we promote growth? In my opinion, government is the last group that should be attempting to answer that question. Politicians are under the influence of special interests and incapable of seeing what really needs to be done to bring the economy back to health. I would point to two examples: the cutting off of water for irrigation in California to protect the delta smelt and the takeover of GM and Chrysler. It is a political talking point, but true none-the-less; government needs to get out of the way for business to grow.

Government gets out of the way by reducing the corporate income tax, by approving the various free trade agreements that are held up by the special interests, by reducing (not increasing as planned) the capital gains tax, and adopting any number of other business-friendly policies that would release the engines of investment and entrepreneurship that enable the economy to grow. The next engine of growth is probably out there, but the government will never find it. The free market will take it forward as it did the auto industry, the internet, and the housing boom. The recent success of Apple's I-phone and I-pad show the amazing capacity for innovation in American industry. It is this kind of creative development that gives us a sense of optimism about the prospects for growth.

If we look at the difference between the economic conditions in Texas and California, we see the advantages of conservative policies over progressive policies. Texas is a low tax, business friendly, tort reform state. Over half of all the jobs created in the private sector in the last six months (which the President has alluded to as a sign of the recovery) were created in one state: Texas. While California is losing population as a consequence of its high taxes and restrictive regulations, Texas is the fastest growing state in the union. California has an unemployment rate of 12%, while Texas is at 8.4%.

With the mid-term elections in two weeks, we need to vote for those leaders who will adopt the policies that are working in Texas and reject the policies that had such a disastrous impact on California or Michigan or New York.

Even if the Republicans take control of congress, I do not see a dramatic change in our economy. We face so many difficult challenges and a divided government will make it even more difficult to get legislation written and passed. Nor do I see President Obama making the kind of shift to the center that saved Bill Clinton's presidency in 1994. (Here's irony for you. The democrats brag about the budget surplus and strong economy under Bill Clinton, but it wasn't progressive policies that produced that surplus, it was the conservative policies he adopted after '94.)

It is important that you vote on November 2. Much is at stake in this election.

Let me also say that in these uncertain times we must be Habakkuk Christians. The housing crisis is not going away, and employment will be weak for some time to come. We can expect to be facing a struggling economy for some time. Our hope rests not in our visible means of support, our job or bank account, but in the faithfulness of our God, who gave Himself for us and promised to never leave us or forsake us. Now is the time for us to live by faith and not by sight, and to reveal a hope that cannot be shaken by any of the challenges of our uncertain economy.

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