SHOCK! High Debt Levels to Stunt Growth

Last week, a new report warned that America’s high and rising level of debt could stunt economic growth if left unchecked.  The Wall Street Journal reports:

The research shows that in an economy where public debt rises from 80% of GDP to 90% of GDP–or any 10-percentage-point increase beyond that–subsequent average annual growth rates will tend to be more than 1/10 of a percentage point lower than without the debt increase.

That is unwelcomed news for America’s struggling economy.  The report itself says, “Countries with high debt must act quickly and decisively to address fiscal problems.  The longer they wait, the bigger the negative impact will be on growth.”

The uncertainty associated with massive debt – think potentially higher taxes and interest rates – stymies job creation.  Reining in our ballooning debt is paramount to restarting America’s economic engine and creating much-needed jobs.

It should come as no surprise that forecasters are not optimistic President Obama’s latest “jobs plan” will provide much of a boost.  Macroeconomic Advisers also notes that extending unemployment benefits – already at 99 weeks for some – will keep the unemployment rate elevated, by as much as 0.6 percentage points.

An analysis produced by The Heritage Foundation revealed there is no economic stimulus associated with extended unemployment benefits.  In fact, the effect is potentially the opposite:

People respond to incentives. Paying workers not to work does not stimulate the economy. Because the increased benefits will most likely be financed by debt, they simply transfer resources from future taxpayers to UI recipients. The lost production resulting from increased unemployment diminishes the effect of this spending, resulting in a negative return. Receiving less GDP than is spent cannot sustain economic growth. 

A better plan would be to identify and repeal regulations that are heaping costly and unnecessary burdens on job creators.  It is an approach the White House has paid lip service to, but done almost nothing to advance.  According to the Washington Post, House Republicans are planning an aggressive fall campaign to address the regulatory burden:

With everyone from President Obama to his Republican challengers in the 2012 campaign focusing on ways to spur economic growth, House Republicans will roll out plans Monday to fight regulations from the National Labor Relations Board, pollution rules handed down by the Environmental Protection Agency and regulations that affect health plans for small businesses. 

According to a Heritage report, it will be a target rich environment for lawmakers:

Overall, the Obama Administration imposed 75 new major regulations from January 2009 to mid-FY 2011, with annual costs of $38 billion.  There were only six major deregulatory actions during that time, with reported savings of just $1.5 billion. 

If the Obama administration wants to know why the economy is weak, all they have to do is look at their record: historic deficits, massive regulations and job-killing benefits.  Judging from President Obama’s 38% approval rating, the American people are ready for him to change his approach.

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