Yes, the Economy Is Growing But Obama's Policies Are Not Helping

According to the Commerce Department, our economy grew slightly faster during the third quarter. But the numbers released  Thursday mean that for the year our country's gross domestic product (also known as "GDP") has only grown at an incredibly slow 1.4 percent. -- That means it's barely keeping pace with population growth.-- In other words, the change in per capita GDP so far this year is essentially zero.

Normally the more severe the recession, the faster is the recovery. During the Reagan administration, for same three quarters, GDP grew at 4.8 percent.

Since the Obama recovery started in June 2009, GDP growth has averaged 2.5 percent, compared to 6 percent over the same time period under Reagan. The quarterly growth rates for the two recoveries are available here.

Obviously, if more people were working it would result in more income. The slow GDP growth we're still seeing is tied to our country's continued record high unemployment. Unemployment has remained at least at 9 percent for 27 months and counting -- a post-World War II record.

While the unemployment rate during the recession in the early 1980s went even higher, reaching 10.8 percent, the high rates did not last as long, staying above 9 percent for a relatively short 19 months.

It is hardly surprising that a Rasmussen Reports poll released Wednesday found that 70 percent of Americans feel that the U.S. economy is still in a recession, with only 14 percent disagreeing. Worse, only 18 percent think that the economy is getting better.

President Obama may now be "relentlessly focused on jobs," but his new stimulus, which would be his sixth if passed, will continue to harm economic growth.

Take Obama's initiative this week to refinance home mortgages. It seems like a great deal for Americans to lower people's interest rates from, say, 6 to 4 percent, making it easier for people to make their mortgage payments. Houses that are worth much less than mortgages will be eligible to be refinanced. So-called "strict income requirements" that were previously necessary to qualify will be relaxed.

Obama sells this plan as something that will also make mortgage lenders better off because it will lower the probability of default. But the question is: why don't banks refinance these loans on their own if it is such a great deal? Sure, they get a lower interest rate, but if the lower probability of default more than offset that, wouldn't the banks do it on their own?

The program is the same as the policies that got us into the housing crisis to begin with. There is a reason why banks don't just look at past payment history but also at present income levels when making loans.

Previous government pressure on lenders to give people loans with virtually no money down is what made it so that people could just walk away from homes when housing prices fell.

Add to that Obama's proposal to eliminate "risk-based fees" where banks are compensated for making risky loans. Banks are forced to take this loss on the interest that they receive on mortgages, and existing borrowers will benefit.

But what about potential home owners who want to get a mortgage in the future? If the government alter bank contracts now, lenders will worry that the government will do so again.

Banks will charge higher interest rates and greatly restrict loans to even lower-risk borrowers. Fewer loans mean fewer people buying homes. Any guess what that will do to housing prices?

Furthermore, Obama's selective offer to "help" is not very fair. What about a person who lost money on their home but who doesn't have a large mortgage? Or those homeowners who bought a smaller home so as not to take out a large loan? Should these new proposals to help Americans just be limited to people who made risky home purchases?

The continued weak economic news will put yet more pressure on the Obama administration to "do something." But the more stupid the policies, the longer we will have to wait for a recovery.

John R. Lott, Jr. is a contributor. He is an economist and author of the just released revised edition of "More Guns, Less Crime" (University of Chicago Press, 2010).