Mitch McConnell Blames the Slow Recovery on Regulation Because He Doesn't Understand How the Economy Works

On CNN’s “State of the Union” Sunday, incoming Senate Majority Leader Mitch McConnell said that Republicans in the 114th Congress will focus on blocking environmental and healthcare regulations: “We need to do everything we can to try to rein in the regulatory onslaught, which is the principal reason that we haven't had the kind of bounce-back after the 2008 recession that you would expect.” But that is exactly the wrong lesson to take from the slow recovery. Rather than laying the foundation for the GOP’s agenda, McConnell is betraying his ignorance on economic issues.

After the financial crisis struck, consumers cut back on their spending and businesses stopped investing. This created a shortfall in aggregate demand—people weren’t buying enough stuff. As consumers stopped buying goods and services, businesses were forced to fire workers, who then cut back their purchases—a vicious cycle. The government’s role is to fill the shortfall in demand, which it can do either through fiscal or monetary stimulus. We’ve done both in the past few years. The stimulus pumped hundreds of billions of dollars into the economy through targeted tax cuts and spending programs. The Federal Reserve cut short-term interest rates to zero to spur investment and used unconventional monetary policy tools like large-scale asset purchases to lower long-term rates. All of this helped avoid a second Great Depression. In fact, as Paul Krugman explained in Rolling Stone in October, the current recovery is actually above average compared to recoveries from past financial crises.

It’s understandable that McConnell would think that this recovery has undershot expectations. Economic growth has been slow and wages haven’t rebounded for the majority of Americans. In fact, only recently—more than six years after the Great Recession—have Americans become more upbeat about the recovery. In other words, this recovery may be above average, but that doesn’t mean it’s been good.

McConnell’s real sin Sunday was his belief that “regulatory onslaught” has been the “principal reason” for the slow recovery. Republicans have made this argument throughout the Obama presidency. If we would only cut government spending, eliminate red tape, and cut taxes for the rich, they say, the economy would thrive. The problem is that these are all supply-side solutions intended to increase productivity and prevent government from crowding out investment. Yet, the economy has faced a demand problem. The GOP’s job agenda, or what they call a jobs agenda anyway, does little to address it.

Source:http://www.newrepublic.com