Coronavirus not an ‘opportunity’ to grow government, reshape economy

The coronavirus pandemic is an humanitarian and an economic tragedy. It is causing a devastating loss of life, unprecedented economic destruction and widespread misery. Yet, presumptive Democratic presidential nominee Joe Biden recently described it as “an incredible opportunity to …fundamentally transform the country.”

Biden is not alone in seeing this pandemic as an opportunity to enact a leftist political agenda. As President Trump fights to save lives and return the nation to prosperity, numerous Democrats have expressed similarly cynical sentiments. With their political instincts telling them not to let this pandemic go to waste, it’s worth considering what happened the last time Democrats attempted to take advantage of a crisis.

As economist Milton Friedman first pointed out in the 1960s, the deeper the recession, the stronger and more rapid the comeback. There is no doubt that the Obama administration anticipated such an economic surge following the Great Recession.

Shortly after his election, Obama’s economic advisers projected that if Congress passed their $800 billion stimulus bill, unemployment would stay below 8 percent. Democrats passed it in February of 2009. The unemployment rate immediately shot above 8 percent and remained there for the next 43 months.

In August of 2009 the Obama White House forecast that GDP would grow between 3.2 percent and 4.3 percent for 2010-16. Actual growth never hit 3 percent. In 2016, Obama’s last year in office, GDP grew 1.6 percent.

The anticipated decline in unemployment and surge in economic growth failed to occur because Obama took advantage of a crisis to expand government and regulate – rather than grow – the private sector.

In 2010, Democrats passed both the Affordable Care Act, significantly expanding government’s role in the health care sector. It also discouraged job growth by increasing the cost of employing workers. That same year, Democrats passed the Dodd-Frank legislation which massively increased financial sector regulation. It also raised borrowing costs and forced many community banks to merge with larger banks or close due to the regulatory burdens.

The federal tax burden also increased in the Obama era. According to the nonpartisan Congressional Budget Office, the average federal tax rate increased from 17.3 percent when Obama took office to 21 percent when he left, a 3.7 percentage point increase that put the economy on the wrong side of the Laffer Curve.

In the 2010 election, Republicans gained control of the House of Representatives, putting an end to Democrats’ big government legislative agenda. Undaunted, Obama pursued government expansion through executive orders and regulation, increasing the Federal Register (of regulations) to an historic high of nearly 100,000 pages.

Business owners do not aggressively grow their businesses when their primary concern is what the government will do next to impede their success. As a result, the economy was stagnant, and the expected economic boom never happened – at least not during the Obama’s presidency.

Not surprisingly, the National Association of Independent Businesses’ business optimism index soared following Trump election as businesses realized the Obama era was over.

While Trump promised that his administration would cut two government regulations for every new one, it actually cut 8.5, reducing the Federal Register to just under 73,000 pages, a 25 percent reduction from Obama’s historic high.

On December 22, 2017, Trump signed the Tax Cuts and Jobs Act reducing tax rates for individuals and businesses. It made America’s corporate tax rate competitive internationally, encouraged investment by allowing immediate expensing of certain capital investments, and increased individual deductions and credits.

By March of 2018, the unemployment rate hit 4 percent for the first time in eighteen years and remained at or below 4 percent for 24 consecutive months. In 2019, unemployment hit lows not seen since the government began reporting the data for African Americans, Hispanics, Asians, and people with only a high school education. For women, the unemployment rate hit a 65 year low, and for teenagers (aged 16–19) it hit a fifty-year low.

Also beginning in March of 2018 and continuing for 24 consecutive months, job openings exceeded people unemployed for the first time since the government began reporting the data.

Within a little over a year, we went from an economy where, under Obama, the biggest problem was too many people unemployed and not enough jobs to one where, under Trump, the biggest problem was employers being unable to find enough employees to fill the existing job openings.

With employers competing for employees, wages increased. While yearly wage growth never hit 3 percent during the last 92 months of the Obama era, under Trump it hit 3 percent in August of 2018 and increased 3 percent or more for twenty consecutive months – until the pandemic hit our shores.

The lesson here is simple. To reignite our economy, to create millions of jobs, to revive the careers that have been interrupted, and to increase workers’ wages: we need to continue implementing pro-growth policies such as those that, under Trump, led to the strongest labor market in modern times.

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