When households and businesses are spending more than they ever have and a healthy amount of goods is coming in from abroad, demand's alive and well. Yes, headline economic growth remains slower than many would like, and some folks might fancy a boost -- but most "boosting" methods involve giving demand a kick in the pants. When demand's already high and rising, trying to goose it further probably won't do much to goad overall growth. A better approach, in our view, is to get rid of the roadblocks preventing already high demand from having its fullest effect. Regulatory red tape is one roadblock -- arbitrary restrictions, slow-as-molasses permitting processes and plain old bureaucracy stymie commerce. Another is the Fed. By flattening the yield curve through quantitative easing, the Fed is shrinking banks' net interest margins and creating a disincentive to lend. That means smaller businesses -- those not large enough to issue corporate debt or rank as supersafe bets for banks -- often are unable to get financing to purchase new equipment, software systems and facilities so that they can increase output to meet high and rising consumer demand.
Since they can't grow as much as they otherwise would, they hire at a somewhat slower pace. The Fed thinks it's stimulating the economy, but it's really holding growth back. Quantitative easing is contractionary. If the Fed would just stop buying long-term debt and allow interest rates to normalize, we'd likely see capital start flowing more quickly to smaller firms -- and, potentially, a good-sized release of pent-up business investment. And then the money would recirculate, spent by consumers and other businesses alike. More economic activity, more growth. With nary an artificial demand boost. This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.