The Daily Caller

The Daily Caller

Overregulation, not phantom spending cuts, caused economy to shrink in fourth quarter

Photo of John Berlau
John Berlau
Senior Fellow, CEI

The schizophrenia of progressive economic thought was on full display last week in the wake of some bad economic news. On the one hand, progressives believe the U.S. economy is so fragile that even the mere threat of cuts in government spending would be disastrous. On the other hand, they believe this same economy is so resilient that billions upon billions of dollars in regulatory costs have no effect on growth at all.

Last Tuesday, The Conference Board — a private group that measures consumer confidence —announced that consumer confidence had plummeted in January. One day later, the Department of Commerce reported that the U.S. economy had actually contracted by 0.1 percent in the fourth quarter of 2012. Then on Friday, the Labor Department announced that the unemployment rate had ticked back up to 7.9 percent.

The establishment media and liberal politicians, including President Barack Obama, either downplayed the news or blamed phantom “spending cuts.” Hardly anyone brought up the dramatic increase in regulation over the last few years and the fear that President Obama’s re-election opens the door to a massive onslaught of red tape.

The Washington Post published a news bulletin blaming the weak economy on “cuts in government spending, fewer exports and sluggish growth in company stockpiles.” The “cuts in government spending” part is wrong on its face. According to the U.S. Treasury Department (and hat tip to John Nolte of Breitbart.com), government expenditures in the fourth quarter were actually up by more than 10 percent from the previous quarter.

The Associated Press story that The Washington Post linked to in the bulletin did not repeat the error and was technically accurate in noting that defense spending had fallen. Other establishment media outlets took a similar approach, seeking to “blunt the bad news [and] continu[e] the left-wing theme that government spending/stimulus is the solution,” notes Julia Seymour of the Media Research Center.

In his weekly address on Saturday, President Obama stuck to the spending-cuts narrative, blaming “bad decisions” by Congress and warning ominously that “we can’t just cut our way to prosperity.”

Instead of blaming Congress for the economy’s struggles, the president should be blaming his own administration for piling on regulation after regulation — what has been called the “regulatory cliff.” President Obama’s re-election made it highly unlikely job creators will get any substantial relief from costly new provisions of the Affordable Care Act (Obamacare) or the Dodd-Frank banking overhaul that hits many community banks and non-financial businesses hard.

As Adam J. White noted recently in The Weekly Standard, “The Obama administration’s first three years of major rules, costing up to $26.7 billion, were five times more burdensome than the Bush administration’s first three years ($5.3 billion) and three and a half times more burdensome than the Clinton administration’s ($7.6 billion).” White adds that these “major rules” were only a fraction of the 3,500 total regulations Obama has issued so far, and the cost figures did not even include the opportunity costs for the economy of blocking the Keystone XL pipeline.