One of the only fair defenses of the stimulus bill is its immediate psychological effect. At the time it was passed, the nation was very, very scared. The general sense was that the government needed to “do something.” Everyone knew that the new Democratic administration wasn’t about to cut taxes as a means of stimulating the economy. Thus, it was assumed that a huge fiscal stimulus – in the form of new spending – was needed, both to inject funds into stalled markets and to alleviate the sense of near-panic in the country.
While the stimulus has largely failed at kickstarting the business cycle, it did satisfy the “do something” impulse. The economic wound did not open further, although it did continue to bleed jobs. The next step, then, is to repair the wound.
In fact, let’s continue this medical analogy. In the crucial first moments after a serious injury, furious activity is the norm. Doctors work quickly to set bones, apply pressure, bandage cuts, or even conduct invasive surgery. Once the trauma patient’s immediate crises are curtailed, however, she needs something very different: long periods of stability. Rather than constant stimulation, she needs calm and rest. While it may look like nothing is happening, the body’s forces are working to naturally heal itself. No doctor can force a wound to close — it can only create the conditions whereby the body will do it on its own. No doctor would ask a patient to learn a new job, or train for a marathon, while recovering from a serious accident. And it’s mad scientists, not physicians, who experiment on patients on the mend.
The same lessons apply to our economy. While the early days of last fall’s crash may have warranted emergency measures, the time for frantic maneuvers is long past. Rather, this economy needs the government to step back and give it some time to heal. Further poking, prodding, and experimentation only waste energy and resources when those are sorely needed by the economic “body” to replenish reserves, invest in capital improvements, and slowly rebuild inventories and workforces. Businesses will not begin to recover until they know the assault is over. And right now, they fear that Dr. Government is waiting right outside the door with another experimental procedure.
The twin spectres of costly health care mandates or greenhouse gas regulations have led companies that might have some cash on hand to hold onto it. They might need those dollars to pay for higher health care costs, or to cover rising fuel prices. International firms that might have seen a weak-dollar economy as a good place to invest are standing on the sidelines, wondering if the cost of doing business in America is about to skyrocket. And small businesses deciding between hiring that next employee or saving for the next rainy day are being given every reason to put up the umbrella.
Stability, not activity, is what we need today. That’s why the best thing our president could do for this economy — and even for his health care program — would be to call a 12-month regulatory truce. No new rules for a year — including new regulatory programs like cap-and-trade or health care. Now able to make economic decisions with some relative sense of certainty, Americans would regain confidence. The dollar would rebound, businesses would react, and investors would reap the rewards. It would send a strong signal to the markets that the mad scientist has been captured, and Dr. Obama is in. It would also boost public confidence in the President, restoring their sense that he listens to their concerns and is willing to change course when the moment calls for it. He wouldn’t even have to abandon his big-government aspirations — he’d just have to delay them. And it wouldn’t cost him a dime.
Sounds like pretty good medicine to me.