Should the Government Do More to 'Stimulate' the Economy?

No, says Professor John Cochrane at the Los Angeles Times' symposium, "Can the economy be saved?" ...

Should the government do more to "stimulate" the economy? No.

Before fixing a car, it's a good idea to figure out what's not working. If the starter is broken, "step on the gas" is not the right answer. The same is true for the economy.

Why are we in the doldrums? Most answers to this question point to structural, tax and regulation problems. For example, one consequence of 99 weeks of unemployment benefits is that people tend to stay unemployed longer rather than take an unattractive job or move. That may be the right and humane policy, but it also means that unemployment will remain high, no matter how much stimulus we do. Looming healthcare, labor market regulation, and tax and regulatory uncertainty make it even harder for companies to hire. Congress has not even started debating what taxes will be Jan. 1. How can anyone plan?

"Inadequate stimulus" is an unlikely diagnosis for our problems. Banks are sitting on about $1 trillion in reserves, up from $50 billion before the recession. If they don't want to lend the first trillion, is giving them another half-trillion going to make any difference? The Fed did a great job of putting out the fire in the financial crisis. Alas, once the fire is out, more water will not make the house grow back.

More "stimulus" is not free. Additional "fiscal stimulus" -- borrowing and spending -- means higher taxes later on, which could usher in a low-growth lost decade -- or, worse, a calamity if investors decide not to renew loans to the U.S. Plus, it's unlikely that taking money from A and giving it to B makes us all better off anyway. Additional monetary stimulus, along with efforts to devalue the dollar, threaten the whole world financial and trade system.

We need to solve the nation's actual economic problems, most of them created by rampant government-induced uncertainty, rather than papering them over with more "stimulus."