Fratto: An Economy Running to Stand Still

The U.S economy today is desperately running in place – it’s neither in the economic freefall of late 2008 and early 2009, nor finding the footing for the rapid acceleration of growth predicted. It’s merely racing to keep from getting worse, held and fed by an addiction to Washington policy.

The drugs of choice to keep the U.S. economy going is long: the financial rescue; bailouts of an insurance giant and two auto companies; two rounds of fiscal stimulus – one large, one small; too many rounds of housing programs to count, with two more housing initiatives coming this week; rescues of Fannie Mae and Freddie Mac; cash for clunkers, cash for houses, cash for states, cash for food, cash for education, cash for students, cash for families with children, cash for small businesses, cash for work, cash for not working, cash for energy conservation, cash for counting energy conservation, and cash for counting all the cash that’s being doled out. The Fed has sold cash, lent cash, and created cash. The Fed has promised to keep cash available for a long, long time, and outlined new ways to create more cash in the future, if needed.


But it’s more than just spending programs.

Washington has also successfully or unsuccessfully put forth an expansive array of new policies with implications for every household and business in the country, predominantly, health care reform and financial regulatory reform that will each result in a bewildering round of new regulations. Add to those proposals for new energy and climate legislation, and even the information on the window when you buy a car.

And if that wasn’t enough, there are also far-reaching tax policy changes, too – and not just the current debate over top tax rates. Washington has instituted or proposed new taxes on health care, on tanning and tobacco, on capital and dividends, on corporate profits earned here and corporate profits earned abroad, on banks, on digital goods and services, and more.

However necessary any or all of this might have been when the economy was teetering on the brink of collapse – and most Americans polled don’t believe it was – it hasn’t created a strong, self-sustaining recovery. Instead, it has created an unhealthy psychological addiction to every utterance from Washington – what Washington will do for you, and what Washington might do to you.

Never before in our economic history have we been so dependent on the potential largess and authority of Washington, DC.

"It’s more than just spending programs. Washington has also successfully or unsuccessfully put forth an expansive array of new policies with implications for every household and business in the country." -Hamilton Place Strategies, Tony Fratto

Where markets once moved based on the news in economic data reports, today they move in anticipation of what government will do or say in response to those economic data releases. In the past few days alone we saw financial markets rise based on a speech in Wyoming by the Federal Reserve chairman, and fall after the Rose Garden remarks by the President.

The plunge in recent housing data – itself the direct result of the expiration of the housing tax credit – this week spurred market rumors of a resumption of the credit. And while the tax credit rumors were knocked down, the Administration announced that two more housing foreclosure mitigation programs were on the way. Every time banks and mortgage service companies figure out how to implement the previous reform, Washington comes forward with another tweak or another new program.

While Washington debates whether we’re headed for a double-dip recession or whether President Obama’s stimulus plan was enough, for most Americans – struggling to find or keep a job, unable to keep or sell their homes – the recession never ended.

To the economic elite, stopping seems irrational. They believe they have to do something…anything. But, Americans just want this all to stop. They will not invest their hopes in the next “fix”, the next spending program, the next policy “reform”. They’re not interested in finger-pointing. They want stability and certainty. They’re ready for the national economic equivalent of a twelve-step group.

They’re tired of the running and just want the room to stop spinning.


Tony Fratto, a CNBC contributor, is Managing Director of Hamilton Place Strategies – a strategic economic policy and communications firm based in Washington, DC. He is a former White House Deputy Press Secretary for the George W. Bush Administration and Assistant Secretary of the Treasury. You can follow him on Twitter at