Recent reports are a grave warning sign that Washington must act now to prevent the economy from becoming much worse. They make clear the urgency with which the job-killing policies of the last two years must be replaced by pro-jobs solutions for economic growth.
We learned last week that U.S. housing prices have fallen more than they did during the Great Depression. As the Wall Street Journal reported, home prices have dropped 33 percent since 2006, compared with a 31 percent decline in the 1930s. The values of bottom-tier homes have fallen a disastrous 63 percent.
Nationally, this means home prices have crashed to the levels they were at in mid-2002--nearly a decade ago--while homes in many American cities, including Atlanta, Detroit, and Las Vegas, are now selling below their price levels in January 2000. Last week's report from Standard & Poor's warned that there is "no relief in sight" for this free-fall in prices.
In the middle of the worst economic crisis since the Great Depression, Washington should have done everything possible to stabilize the housing market and the economy. Instead, President Obama and Democrats in Congress took the opportunity to pass the Dodd-Frank Act, sweeping regulation of one-sixth of the economy that promises to make the crash in home prices even worse.
Dodd-Frank gives the federal government the authority to deem certain institutions "systemically important" to the financial system, and thereby subject them to unique regulations at the arbitrary discretion of the Federal Reserve and executive branch. These institutions could include banks, insurance companies, and other large financial firms.
Although the Administration claimed that Dodd-Frank abolished "too big to fail," it in effect will do the opposite, creating a class of financial institutions that have the government's implicit backing and guarantee -- potentially giving these firms an unfair advantage over competitors and even opening the possibility that the government could dictate decision-making at these firms.
The threat of arbitrary regulation becomes even more dangerous with the creation of the Consumer Financial Protection Bureau (CFPB), which Dodd-Frank created as a virtual appendage of the Federal Reserve. In the mold of Obama's "czars," it will be headed by presidential appointees and draws its funding from the Federal Reserve, as opposed to appropriations from Congress. The CFPB will have wide-ranging authority to regulate financial institutions, yet remains essentially unaccountable to Congress.
The cost of compliance with the Dodd-Frank Act's hundreds of pages of regulations, as well new ones from the CFPB, will weigh significantly on large institutions and disproportionately on small ones. The mandates the law contains pose an existential threat to community banks, which will struggle to comply with the requirement to hold more capital and the onslaught of additional rules. The law is already killing community banks and crippling loans to small businesses and homeowners.
Dodd-Frank is terrible for the housing market, which is dependent on the very lenders for whom Democrats have chosen to raise costs and uncertainty. The result is the worst drop in home values since the Great Depression.
This is a tragedy for the millions of Americans whose homes are now worth less than what they paid for them just a few years ago, and for the millions more whose houses make up a large portion of their net worth. Even the most responsible homeowners are seeing their money evaporate in a housing market distorted by bad government policy.
Job-Killing Policies Kill Jobs
Another indication that the economy is getting worse, not better, was the jobs report last Friday which showed that unemployment jumped to 9.1% in May, with the economy adding a paltry 54,000 jobs. (Morgan Stanley has estimated that up to half of these--as many as 25,000-30,000--could be new low-wage, temporary employees on the payroll of McDonald's, added during a big hiring spree after the April jobs report.)
The May jobs numbers reached only a quarter of the 200,000 jobs per month economists estimate are needed to start cutting the unemployment rate, and was far lower than the Administration had expected.
It should not have been a surprise. Job-killing policies kill jobs.
This was the theme of my newsletter one year ago this week, in the wake of yet another disappointing jobs report and in the midst of unemployment over 9 percent. A year later, the Left still has not learned that big-government, bureaucratic policies kill jobs, repress economic growth, and postpone prosperity.
If the president and Democrats in Congress have not realized this, however, the average Americans who feel the pain of unemployment, housing and gas prices certainly have.
Goldman Sachs' chief U.S. economist reported last week that Americans' optimism about their future income is at its lowest point in 25 years. Less than 15 percent say they expect their family income to be higher a year from now than it is today. This pessimism is the prospect millions of Americans face if the destructive policies of the Left are not reversed.
Crippling American Energy is a Job-Killing Policy
When President Obama was inaugurated in January 2009, the average price for a gallon of gasoline was $1.84. Today, it is more than twice that at about $3.77 per gallon. During the time in between, the president imposed a lengthy moratorium on offshore oil drilling, fought for a cap-and-trade bill that would have wrecked the economy if it had passed, and gave the Environmental Protection Agency unprecedented bureaucratic authority to dictate energy policy nationwide. (See my newsletters about the EPA here and here for examples).
With gas prices climbing towards $4 per gallon, it is critical that we remove the obstacles to greater American oil production and end the ban on oil shale development.
Instead, the president is committed to crippling American energy production along with his host of other policies that increase scarcity and kill jobs.
Washington Must Act Now
The reports of the last few weeks all indicate the danger of the Obama recession turning into the Obama depression. A single external shock such as a Greek collapse, a natural disaster, or an interruption in oil supply could push this weak economy over the edge. Washington must act now to get America growing again.
Ronald Reagan took just 23 months to end the Carter recession. In terms of today's economy the Reagan model created the equivalent of 25 million jobs over 7 years, increased per capita income by $8,800 per year, and raised government revenue without raising taxes.
If President Obama had followed the successful Reagan model of low taxes, deregulation, a stable dollar, and more American energy, America would now be on a path of strong and sustained economic growth.
It is not as though we don't know how to solve the current economic mess. We have replaced the destructive policies of the Left before, and we can do it today.
As I said last week, there are at least nine steps we should take immediately following the Reagan model to get America working again:
1. Repeal Obama's scheduled 2013 tax increases for virtually every federal tax which threaten to turn the recession into a depression.
2. Cut the capital gains tax to zero to promote investment in the United States and job creation.
3. Cut the corporate tax rate from the highest in the world to match Ireland at 12.5 percent so that American companies can compete anywhere in the world.
4. Adopt 100 percent expensing so American companies can write off new equipment to make sure American workers are the most productive in the world.
5. End the death tax permanently so family businesses and farms can focus on job creation.
6. Repeal Sarbanes-Oxley to free up new businesses to grow.
7. Repeal the Dodd-Frank law which, as I wrote above, is killing small banks and crippling small businesses and homeowners.
8. Adopt an American energy program to keep the $500 billion we spend on foreign oil each year here in the U.S. putting Americans to work.
9. Repeal Obamacare to stop the destruction of small business jobs.
With 9.1 percent unemployment, housing prices in their worst decline since the Great Depression, and $4 per gallon gasoline, it is time to end the Obama recession by replacing the president's job-killing policies with proven solutions for prosperity.