GOP Policies Will Lead to a Quick, Strong Recovery

August 26, 2020 Updated: August 26, 2020

Commentary

In January 2009, the economy was in the middle of the worst recession since the 1930s. President Barack Obama and Vice President Joe Biden were sworn into office. Their policies led to the worst recovery ever. If Biden is elected in November, the recovery from the current recession will be weak and very slow.

To get the economy out of recession, start a quick recovery, and eventually lead to an expansion, economic policy should set growth as the number one priority. Indeed, once the economy is growing, all of the social problems are much easier to solve. Unfortunately, that didn’t happen in 2009.

The decision by Obama/Biden to put social justice issues ahead of economic growth stagnated the economy. It wasn’t until 2013, four years after the recession ended, that the economy fully recovered from the “Great Recession.”

In fact, had Obama/Biden done absolutely nothing in their first two years, the recovery would have been much faster. Their actions, which were focused on curing perceived social injustices, offset any actions that would have grown the economy.

For instance, the Federal Reserve set the most expansive monetary policy in history. They nearly tripled the money supply and dropped interest rates to zero. This quantitative easing action should have led to huge increases in economic activity. Instead, it had a very small impact.

The reason was simple. Initial increases in the money supply are supposed to be multiplied to have a greater overall impact. The multiplying effect occurs when banks make loans, which expand the money supply and expand economic activity once the loans are spent.

The problem in 2010, Obama/Biden incorrectly believed that the financial crisis was mostly caused by banks making loans to people who freely applied for them but really couldn’t afford them. They reasoned that this social injustice had to be cured. The Dodd/Frank bill was signed into law.

The law eliminated what they referred to as predatory lending. The problem was, it significantly reduced all bank lending. Without bank lending, monetary policy is ineffective.

Obama/Biden also passed a massive nearly $800 billion stimulus package. That alone should have vastly increased economic activity. There’s a multiplying effect of increases in government spending, as long as the spending is done in such a way that it encourages more spending.

The problem was that much of the funds were geared toward social issues, such as promoting solar energy. Since that spending didn’t reflect what consumers would normally purchase, there was little multiplying effect. Most economists would say that the stimulus package did help the recovery, but it didn’t have the impact that large spending increases should have had.

Then Obama/Biden passed the Affordable Care Act, which provided health insurance to about 6 percent of the population (20 million people) that previously didn’t have health insurance. The problem was that it forced companies to provide health insurance to all of their employees or pay a $3,000 fine. That added to the cost of labor and slowed economic growth.

The result was that economic growth averaged about 2 percent for the Obama/Biden years. Contrast that to the Reagan recovery after the 1981 recession where economic growth hit an annual rate of 7.5 percent by 1984.

Reagan’s stimulus concentrated on tax cuts, rather than increased spending. That put money into the hands of consumers who spent it on what they wanted, not what the government wanted. That increases the multiplying effect.

Or the Kennedy/Johnson recovery after the 1962 recession where economic growth hit more than 6 percent by 1964. Their policy also concentrated on tax cuts.

To lead the United States out of the current recession and provide a quick V-shaped recovery, Trump will follow historical precedent. He already passed stimulus bills that gave consumers thousands of dollars to spend. Trump also increased payments to unemployed people, again putting money directly in the hands of consumers.

So far, the economy has seen the fastest growth rates ever in May, June, and July of this year. More than 9 million Americans returned to their jobs in those three months. If re-elected, Trump will continue to push tax cuts, reducing counter-productive regulations and make fairer free-trade agreements. Biden would do just the opposite.

Biden will raise taxes on all Americans and corporations. That will slow economic growth. Biden will pass new regulations on business so that business will not take advantage of consumers. That will slow economic growth.

Biden will give more money to unemployed workers, thereby encouraging them to remain unemployed. The problem with the last stimulus bill that gave an extra $600 per week to all unemployed workers was that 68 percent of the unemployed received more money being unemployed than actually working. That’s why Trump will not agree to this again.

It’s important to solve social injustices, but that’s much easier when the economy is growing and unemployment low. Trump’s policies will lead to rapid growth. Biden’s policies will lead to economic stagnation.

Michael Busler, Ph.D., is a public policy analyst and a professor of finance at Stockton University, where he teaches undergraduate and graduate courses in finance and economics.

The views expressed herein are solely those of the author. As a nonpartisan public charity, The Epoch Times does not endorse these statements and takes no position on political candidates.