The bottom line? We’ll see a modest recovery, perhaps running around 4 percent in 2010. But it should be closer to 8 percent following the Great Recession. Job creation will pick up and unemployment will decline a bit. But the threats of higher future inflation and taxes will become increasingly troublesome.
The failure of Washington to understand that capitalism requires capital is a big dilemma. All this government spending and planning drains the investment that is necessary for a truly strong and sustainable economic recovery.
In the short run the economic news is good. In the longer run, we’re staring at a European-style socialism-lite model that places government above private investment. Hence, animal spirits may be dulled, along with Schumpeterian gales of creative destruction. A top-heavy government sector will steadily reduce the economy’s potential to grow and raise the inflation rate as too much money chases too few goods.
Yes, the dollar has improved in recent weeks on the strength of better economic data. And gold has sold off about $100. But it’s hard to expect real King Dollar–confidence unless current government-spending policies are reversed.
An important USA Today story about boom times in the Beltway underscores all this. The paper revealed this week that the number of federal workers earning six-figure salaries exploded during the recession. The number of federal pay caps eased, while pay hikes proliferated -- all while the private economy suffered massive job loses.
According to Chris Edwards at Cato, there are now 383,000 federal workers earning six-figure salaries, and 22,000 earning salaries over $170,000; the number of civil servants making $100,000 or more has jumped over 46 percent since the start of the recession; and the average federal-worker’s pay and benefits is $120,000, double the comparable $60,000 package in the private sector. Edwards also reports that Recovery Act funding has created 407,000 government-contract jobs.
All this helps explain why long-term economic growth is likely to slow to a 2 percent zone, rather than cruise in the 3.5 percent zone of the 1980s and 1990s. The primacy of government over private enterprise has been tried, and has failed dismally.
I remember when Pres. Ronald Reagan talked about “we the people,” borrowing from the Preamble to the Constitution. To the Gipper, “we the people” meant the government works for us -- we don’t work for the government. It’s our money. And we should get it back through tax cuts whenever possible.
Mr. Reagan was talking about economic freedom. Unfortunately, that freedom is becoming a scarce commodity.