John Taylor

Government is More to Blame for Weak Recovery Than Fading Stimulus

Just as economists have debated the causes of the financial crisis, they are now debating the causes of the slow, almost non-existent, recovery. Topping my list of causes are the so-called stimulus packages — which empirical work shows did little to stimulate — and other government interventions, which have left an overhang of uncertainty impeding private investment.

As my colleagues Gary Becker, George Shultz, Michael Boskin, John Cogan and I explained last summer:

The 2008 tax rebate and the 2009 spending stimulus bills failed to improve the economy. Cash for clunkers and the first-time home-buyers tax credit merely moved purchases forward by a few months. Then there’s the recent health-care legislation, which imposes taxes on savings and investment and gives the government control over health-care decisions. … Hundreds of new complex regulations lurk in the 2010 financial reform bill with most of the critical details left to regulators. So uncertainty reigns and nearly $2 trillion in cash sits in corporate coffers.

The latest entry in the debate over the anemic recovery comes from a recent column by Paul Krugman, which Amity Shlaes responded to earlier this week. He argues that "As the stimulus has faded out, so have hopes of strong economic recovery."

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