I believe the improvement in the economy could be surprisingly large and fast. It could occur first in jobs, then housing, then spending via optimism by consumers and businesses.
Two years ago the Bush and then the Obama administrations bought into the Keynesian myth that all the economy needed was government-propelled spending and monetary ease. Combined with business-bashing by Obama and job-killing regulations and Obamacare, along with the prospect of big tax hikes January 1, the job-creaters in the private sector stopped hiring and laid-off workers where possible. They cut investment in new plant and equipment, outsourced, and husbanded their profits and retained earnings. They looked at the anti-business Senate, House, and Executive branch, all seemingly supported by public opinion, and did not see a friendly future. Of course unemployment rates soared.
We have now seen that the stimulus failed massively, not just wasting taxpayers’ money (and that of our children), but entrenching many new wasteful programs that will be hard to cut back. Why did it fail so thoroughly to boost jobs? Because it spread money to government and union jobs–perhaps 20% of overall employment–while bashing the other 80% of the economy. Small businesses in particular are the source of new jobs, especially of the youth, minorities, part-timers, etc. Instead of creating three or four such jobs, the stimulus gave a job to a GM plant, CA teacher, or Bank of America officer. The other 80% of the economy shriveled as its likely future taxes and regulation looked poised to jump.
Now that the electorate has learned the true effect of these policies, we have reason to hope for a more business-friendly government. Barring unforseen developments–such as a “go down with the ship” angry bunch of lame-duck politicians doing damage after November 2–I see a comeback in hiring and consumer and business spending that will surprise many. Instead of the silly multiplier effect touted by Obama’s now-departed and disgraced economists, we need to look at mass psychology and waves of optimism and pessimism that influence the economy–what Keynes rightly called the “animal spirits” of the job-creaters.
