From Seeds of Destruction to Seeds of Prosperity
The American economy is structurally unbalanced and
therefore stalling. Over the last
decade, because of a combination of over-consumption, under-investment,
excessive government spending and chronic trade deficits, our GDP has grown at
a rate 25% below its historical average and thereby failed to create at least
10 million jobs. We cannot resolve
these long term structural imbalances by relying on short term fixes. Instead, we must recognize these
essential truths and embrace long term structural reforms.
#1: To avoid the debilitating long term effects of excessive
government spending and debt, we must reject any further use of discretionary
fiscal stimulus while having the patience to allow automatic stabilizers to do
their job. In implementing any future
stimulus, we should favor tax cuts to stimulate business investment over
increased government expenditures as this is the best way to stimulate job
creation. We cannot simply spend
more money and expect to fiscally stimulate our way to prosperity.
#2: The Fed must turn its emphasis away from discretionary
fine-tuning and firmly embrace a rules-based policy that targets price
stability, a sound dollar, and sustainable long-term growth. We cannot simply print more money and
expect our economy to recover.
#3: The American economy will never return to full
prosperity until it completes a very broad-based tax reform because the current
complex income-based tax system discourages both saving and investment,
handcuffs American exporters, and promotes a cult of fiscal irresponsibility.
Any broad-based tax reform should broaden the tax base, reduce marginal tax
rates, and remove any tax incentives against savings, investment, entrepreneurial
risk-taking, and exports.
#4: America’s chronic trade deficits act as a brake on
growth, create inflation, and threaten the loss of our political
sovereignty. Trade with reform
with our largest trading partner is particularly critical because China engages
in a wide range of protectionist and mercantilist practices that make it very
difficult for American businesses to compete on a level, free trade playing
field. Boosting the American
savings rate and returning consumption to a normal level should be part of our
overall trade policy.
#5: America’s “oil addiction” acts as a stiff tax and strong
brake on growth. As oil prices
rise, consumers lose purchasing power, businesses face higher production and
transportation costs, and growth slows. A flexible oil import substitution fee set equal to the difference
between the actual world price for a barrel of oil and the target price
necessary to achieve a targeted reduction in oil import dependence is the best
market-driven solution.
#6: America's largest entitlement program -- Social Security
-- faces a looming funding deficit that threatens its very existence. The best way to close the
forecast spending gap is to raise the retirement age to match rising life
expectancies and index initial Social Security benefits to prices rather than
wages so as to maintain real, inflation-adjusted purchasing power for
beneficiaries.
#7: President Barack Obama was right to pursue health care
reform, but ObamaCare is just plain wrong. It expands health insurance coverage rather than
containing costs and pays for this massive new entitlement by increasing the
budget deficit and raising taxes. The inevitable consequences will be to
exacerbate our health care cost problem while stifling investment and stalling
the economy. There is a clear market-driven path to reducing health care
costs while improving the medical care quality that relies on eliminating the
tax code bias for employer-provided insurance, removing state barriers to
competition, and reforming malpractice laws.
What is sorely missing from the national dialog is any sense
of urgency about America’s long-term economic prospects. What we all must
realize is this: The greatest threat to America’s national security is an
economy too weak to support our population and too structurally unbalanced to
propel this nation to renewed strength and prosperity. Unless real change occurs in how this
country conducts its politics, and unless we address the growth-killing
structural imbalances in our economy, we as a nation will be unable to confront
our challenges and seize the opportunities that lie before us -- to the
detriment of our children’s future. That is why now is the time to find the
appropriate path to prosperity and thereby achieve the economic security and
political stability that come with such prosperity.