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Economic data over the past weeks, punctuated by last week's dismal
employment reports, confirm the diminishing impact of the stimulus efforts
orchestrated by the Obama Administration and the Federal Reserve. In what
must be a huge disappointment to Keynesian enthusiasts, the record doses of
both monetary and fiscal narcotics did not produce the desired results. In
fact, the size and scope of the "recovery" of the past two years
was weaker than would have been expected in a typical business cycle recovery
without any stimulus whatsoever. Indeed our current recovery is the weakest
on record, despite the biggest jolt of government stimulus ever administered.
But despite the gathering gloom Austan Goolsbee, the Chairman of the President's Council of
Economic Advisors, argued over the weekend that the economy is on the right
track and that the recent salvo of horrific economic reports were not
significant. The poor numbers, he said, resulted from external factors like
the Japanese earthquake and the downgrade of European sovereign debt. I don't
know if he really expects anyone to buy his story, but admitting you have a
problem is the first step toward recovery.
In a sign that Mr. Goolsbee may have been
getting increasingly uncomfortable with his job of economic propagandist, he
abruptly resigned this week. He will be returning to academia where I'm sure
he is hoping to avoid blame for the coming economic train wreck.
Although I have made these comparisons before, the parallel between
drug addiction and the reliance on economic stimulus is just too strong to
ignore. And as with drug addition, an economy builds up a tolerance. Each
time the government successively stimulates with printed money or deficit
spending, ever larger doses are needed to achieve the same result. Lest we
forget, coming into the Crash of 2008, the economy had been on the receiving
end of years of over stimulus. President Bush and Alan Greenspan never fully
weaned the economy of their shock treatments that followed the dot.com crash
and the shock of September 11th.
This time around, the stimulus-fueled recovery is so mild that the
economy is already relapsing into recession before the Fed has even begun to
tighten. This puts Bernanke in a very difficult position. He either follows
through on his loudly trumpeted plans to end quantitative easing this summer,
or abandon those plans in favor of more stimulus.
Both choices are unappealing.
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Peter Schiff
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