“As for the future, your task is not to foresee it, but to enable it.”
Antoine de Saint-Exupery, 1900 – 1944
An important new book, “Dead Men Ruling,” by the Urban Institute’s C. Eugene Steuerle, has just been published. Here is the flavor of its message: “Dead and retired policymakers have put America on a budget path in which spending will grow faster than any conceivable growth in revenues. … The same policy makers also cut taxes so much below spending that they created huge deficits, which have now compounded the problem with additional debt.”
“Both sides have largely achieved their central policy goals – liberals have expanded social welfare programs, conservatives have delivered lower taxes. Both now cling tenaciously to their victories.”
In short, “our central problem is the loss of fiscal freedom.” There are “four deadly economic consequences of this disease:
rising and unsustainable levels of debt,
shrinking ability of policymakers to fight recession or address other emergencies,
a budget that invests ever less in our future and is now a blueprint for a declining nation, and
a broken government, as reflected in antiquated tax and social welfare systems.”
In addition there are “three deadly political consequences:
a decline of ‘fiscal democracy’ depriving current and future voters of the right to control their own budget,
a classic ‘prisoner’s dilemma’ where both left and right leaning elected officials conclude that they will suffer politically if they lead efforts to impose either spending cuts or tax hikes, and
rising hurdles to changing our fiscal course because, to do anything new, requires reneging on past promises of rising benefits and low taxes, that voters have come to expect.”
In other words the U.S. is in a very difficult predicament. Mr. Steuerle thinks it will take a major “fiscal turning point” to escape from the present danger. Both sides will have to make big concessions in order for us to get out of this jam. But how is this possibly ever going to happen? More next time!
I am a fiscal conservative, as well as a social moderate, which means that I don’t fit very easily into a standard mold. I am non-doctrinaire, non-ideological and mostly nonpartisan. I vote for candidates from both major parties as well as independents. I prefer a balanced government with neither party in complete control.
My most direct sources of information on fiscal and economic issues are the Wall Street Journal and the New York Times, both of which I read assiduously on a daily basis. When these two newspapers disagree on a particular issue, then I usually decide that the truth lies somewhere in between. Our biggest national problem right now, in my opinion, is the stagnant economy. In today’s WSJ, the lead editorial, “The Growth Deficit”, clearly describes how bad the situation is. Since the Great Recession ended in June 2009, our rate of GDP growth has averaged 2.2% per year. This compares with a 4.1% annual rate of growth for all post-1960 recovery periods.
Such a slow rate of growth causes all sorts of problems. First of all, it explains why our unemployment rate is still so high at 6.7% after five years of recovery. This means that between 15 and 20 million people are still unemployed or underemployed. Such a large human toll means a huge increase in government welfare expenses for food stamps, unemployment insurance, etc. Higher unemployment also means less tax revenue collected by the federal government. This translates into much larger deficit spending, adding to the already massive national debt.
There are lots of things which can be done to increase growth, for example:
Lowering tax rates on individuals to put more money in the hands of the 2/3 of Americans who do not itemize deductions on their tax returns. They’ll spend this extra income and create more demand! Pay for this by closing loopholes and deductions, which are used primarily by the wealthy. Besides stimulating the economy, this will simultaneously address increasing income inequality.
Lowering tax rates on corporations to encourage multinationals to bring their foreign profits back home for reinvestment or paying dividends. Again, balanced by eliminating deductions enjoyed by privileged corporations.
Relax regulatory burdens on small businesses where most new jobs are created.
Reform immigration procedures by boosting the number of H1-B visas to attract more highly skilled, and entrepreneurial, foreign workers.
Grant trade promotion authority to the President to speed up new trade agreements.
We should be clamoring for our national leaders to be acting on these fronts. A strong economy is the very backbone of our success as a nation!
Wall Street Journal columnist William Galston suggests in “Where Right and Left Agree on Inequality”, that both sides of the political spectrum agree that economic inequality is increasing in America and that government needs to address this problem. “Poverty is part of the explanation, as liberals insist. But so are parenting and family structure, as conservatives believe.” It so happens that we have a broadly supported federal program which simultaneously addresses both poverty and family structure. It is the Earned Income Tax Credit program. It provides $3,305 a year to low-income working families with one child and up to $6,143 for families with three or more children. The U.S. spends $61 billion a year on this program and it has proven to be very successful in encouraging low-income people to find and keep jobs. In fact, the economist, Gregory Mankiw, recommends the EITC over a higher minimum wage as a better way to increase the earnings of the working poor.
The New York Times’ Eduardo Porter reports in “Seeking Ways to Help the Poor and Childless”, that New York City is conducting an experiment to see if a locally run program similar to the EITC will have the same positive effect in increasing employment of childless adults. It is understood that many of the jobs being created in today’s economy are low paying service jobs. As Mr. Porter says, “for the American market economy to remain viable, being employed must, one way or another, provide for workers’ needs.”
Conclusion: as important as it is for Congress and the President to adopt measures to increase economic growth (e.g. tax reform, fiscal stability, expanded foreign trade, immigration reform), in order to create more and better paying jobs, government also has a responsibility to provide direct help to the needy who are trying to help themselves. The EITC program is an excellent way to do this!