Judd Gregg: Igniting growth is not the Fed’s job

Twenty-five basis points, one-quarter of one percent, on the Federal Reserve’s benchmark interest rate is the cause of massive hyperventilation in the media, among financial market commentators and in almost all discussions of the nation’s economic well-being.

But this focus is both overly obsessive and misdirected. 

{mosads}It is true that monetary policy has been the single most significant force since the financial collapse in affecting our economic status. It has saved us from what most likely would have been a truly catastrophic economic downturn, a depression of proportions unseen since the 1930s.   

It is reasonable, therefore, that the activities of the Federal Reserve should be so intently followed by so many in the political arena, and markets both here and abroad.

But these moves are much less critical than they were even three or four years ago. A tipping point has been reached. Quantitative easing would be a marginal event if it were further pursued today.    

The Fed should determine how we return to “normalcy.” It should work out how to reduce its balance sheets and bring in some of the dollars it has printed without causing disruptions to our slowly healing market economy. 

This is not, however, the essence of what will drive greater prosperity in the nation. It is only part of it, and not the largest part.

Liberating the growth engine that is America is not, at its core, an issue of twenty-five basis points.

Today, it is fiscal policy, regulatory policy, tax policy (which of course is part of fiscal policy but has such an outsized role it needs to be mentioned separately) and the stability and direction of federal government that will be either the accelerants or retardants of our nation’s economic vigor.

If we had a government that was properly coordinating and executing on these factors, our growth would be exploding. Our people’s standard of living would be rising, jobs would be plentiful and rewarding. In such an expansive climate, the Fed could return to its traditional purpose of not letting us get ahead of ourselves as we expand. It would be focused on controlling the forces of inflation as best as it can.  

Times would be pretty good.

But we are not there. Nor are we even getting there.

The federal government is in conflict with the American people. It is stymieing most of the core elements that lead to growth and greater prosperity. 

People who take risks by starting small businesses that create jobs need to know that they will not be viewed as enemies of the State if they succeed. This does not seem to be the situation today. 

Regulation is suffocating, taxes are structured to penalize the risk-takers, and liquidity and the availability of credit on Main Street have been muted. All those things hurt small businesses especially.

Larger businesses are penalized for being large, for being multinational and for being aggressive.

It is not difficult to see why growth is stalling out and people are frustrated. There is a lack of choice and opportunity when it comes to finding jobs and securing a decent economic future.

The fix is not that complicated. It does not involve a twenty-five basis point move by the Fed. 

It does involve having a government that actually believes and supports individual initiative and the markets. It is pretty much that simple.   

Change the tax laws. Take out all the special interest provisions that have been put in them and return to a system where people and corporations invest for a return, not for tax avoidance.

Allow international companies to bring their earnings home and use them here to create jobs, without incurring a ridiculous tax penalty in the process.

End the diarrheic spew of regulations from Washington.  

If companies or people take risks, make them eat the consequences of it. Do not set up a massive blanket of protection that not only fails to protect, but actually undermines, the ability of the responsible to succeed and create jobs.  

Get the taxpayer out of the insurer-of-risk role especially in areas like mortgages. End the subsidies which pervert markets, misdirect resources and undermine appropriate expansion of credit.

There should be a one-time, large shot of economic stimulus, but it must be done right way. Aim it at capital and infrastructure improvements such as roads, bridges, water systems, energy transmission lines and science and health research. And pay for it in part with an increased gas tax.  

Take advantage of our new and exceptional competitive advantage in the world energy markets by allowing oil to be exported and thus creating jobs here, while giving us new leverage in the Middle East.

President Obama and the Congress must understand they are supposed to lead the nation to a more prosperous place. The Federal Reserve is not elected to do this, nor can it do so in the long run.  

The president and the Congress can. It is about time that they did.

Judd Gregg (R) is a former governor and three-term senator from New Hampshire who served as chairman and ranking member of the Senate Budget Committee, and as ranking member of the Senate Appropriations Foreign Operations subcommittee.