A Facebook friend recently objected to my criticisms of President Obama and the Democrat’s handling of the economy. Over the past years and months I have written about many possible solutions to the economic and debt crises that threaten to send the United States into a second recession or worse, a depression.
In a memorable episode of “Seinfeld,” George Costanza decides that since his every instinct is wrong, he should do the opposite of what he would normally do. As Jerry put it, “If every instinct that you have is wrong, then opposite would have to be right.” President Obama has had similar bad instincts on the economy and should adopt a similar strategy. Since President Obama’s fiscal policies have hastened the crisis and dramatically increased the federal debt while at the same time slowing the normal recovery cycle, a good start would be to do the opposite of what he has been doing for the past three years. The opposite of Obama’s past policies would be policies that have worked previously in U.S. history, notably under Presidents Harding, Coolidge, Kennedy, Reagan, and Bush.
To this point, President Obama has focused on top-down solutions. These programs have been expensive and ineffective. The opposite would be a new focus on free market solutions in which the government empowers business rather than targeted initiatives and government spending. There are currently 6.2 million people unemployed in the United States according to the Bureau of Labor Statistics. Another 8.4 million are underemployed because their hours have been cut back or they cannot find a full time job. In Georgia, an estimated 467,000 people are unemployed. Even spending trillions of federal dollars cannot provide jobs for all these people.
Alternatively, history has shown that if the government cuts spending, tax rates, and regulation then the economy will rebound. As the economy grows, demand for products will rise, businesses will expand and hire new workers. The unemployment rate will decline at no cost to the government.
President Obama should avoid his instincts that lead him to look at government spending as a solution to every problem. The federal deficit was a problem long before President Obama took office, but his spending has made it dramatically worse. The U.S. recently received an unprecedented downgrade of its credit rating from Standard and Poors. Downgrades from other rating agencies are likely if the country continues on its current course.
It is time for President Obama to keep his campaign promise to “go through the federal budget, line by line, eliminating programs that no longer work and making the ones we do need work better and cost less.” The president should start by eliminating government programs that duplicate the same role or provide the same service. Programs that compete with private businesses or which could be accomplished more efficiently by private business should be cut.
The remaining programs should be examined in light of the government’s Constitutional role. If a program is extra-constitutional (i.e. not mentioned in the Constitution), its existence should be closely examined. Extra-constitutional programs are not necessarily unconstitutional (prohibited to the federal government or reserved to the states), but they are likely a distraction from the government’s primary roles and a cost that the U.S. can no longer afford. There are many good and worthwhile programs that there the U.S. simply does not have the money to pay for any longer.
Any debt reduction must include reform of entitlements. While these programs were originally well-intentioned, they have grown to unmanageable proportions and threaten to bankrupt the federal government. A Wall Street Journal article lists Social Security, Medicare, Medicaid, and interest on the federal debt as the four largest expenditures of the federal government. These four items are more expensive that the combat operations in Iraq and Afghanistan or foreign aid to other countries.
Entitlement reform should include making these programs true safety nets rather universal entitlements. People who can afford to pay for their own retirement or health care should be encouraged to do so. For others, the government should implement cost-sharing to encourage price-shopping and reduce consumption. As life expectancies increase, the retirement age must be increased. The programs should be closely policed for fraud and abusers should be prosecuted to the fullest extent of the law.
Thus far, Rep. Paul Ryan of Wisconsin is the only politician of either party to submit a detailed plan for entitlement reform. Ryan’s plan would not affect benefits for current retirees. Vouchers for private insurance would be phased in over time and would give seniors a choice in the health insurance. Medicaid would be transformed into block grants that would encourage states to find savings and efficiencies. Younger workers would be given the option to place part of their Social Security tax into a private retirement account, rather than depending on the soon-to-be-bankrupt Social Security program.
President Obama should resist his impulse to call for higher taxes and more shared sacrifice. In a fragile economy such as this, raising taxes will guarantee another recession. Ironically, as the economy shrinks from the recession, federal tax revenues will actually decline even with higher tax rates.
The best way to boost tax revenues is through reform of the tax system to grow the economy. When state and local taxes are included with federal taxes, the U.S. tax burden is higher than many other countries. The U.S. corporate tax rate is one of the highest in the world. Reforming the tax system with lower rates and fewer deductions would make the U.S. more competitive internationally while simultaneously lowering the cost of compliance. This would help to jumpstart the economy and grow tax revenues. Even better would be a flat tax or the Fair Tax, a consumption tax that would replace the income tax entirely, but politically these are not yet workable.
The president should also declare a moratorium on new federal regulations. The Obama Administration has introduced a plethora of new regulations that both stifle business creativity and make it more expensive for companies to do business. The Dodd-Frank financial reform added substantially to costs of financial businesses while completely ignoring Fannie Mae and Freddie Mac, the government-sponsored entities that were the end purchaser of the subprime loans that led to the 2008 financial crisis. Some banks are choosing to go out of business rather than operate at a loss in the current regulatory environment. Obamacare added multiple costly layers of regulation to the health insurance industry. The Obama Administration was sued and lost over its offshore oil drilling ban. When the government still refused to issue drilling permits, a judge found Obama’s Interior Department in contempt.
More recently, the Obama Administration mandated an increase in the corporate average fuel economy (CAFÉ) standard to 54 miles per gallon by 2025. This change will hurt American car companies and consumers by increasing the price of cars and making it more likely that they will be built from lighter, less crashworthy, materials. This may eventually cost Georgia jobs from its automotive industry, including the new Kia plant in West Point.
In some cases, when Congress rejected its regulatory proposals, the Obama Administration enacted them unilaterally through federal agencies in the executive branch. When Congress voted down net neutrality, the FCC announced rules that would enact it anyway. When Congress could not pass cap-and-trade of carbon, the EPC decided to regulate it under the Clean Air Act. There have threats that the National Labor Relations Board could make a similar move to enact Card Check with congressional approval. The NLRB has already decreed that Boeing, a unionized company, cannot build a new factory in South Carolina, a right-to-work state.
There is little wonder that the business investment is stalled when federal regulations are issued so often and arbitrarily. Grover Norquist of Americans for Tax Reform estimates the cost of complying with federal regulations at $2.8 trillion annually. If the government enacted a moratorium on new regulations and comprehensive review of existing ones, that money could be spent much more productively.
The Affordable Care Act should be repealed. This law, often called “Obamacare,” is an example of all that is wrong with the government. The law costs trillions of dollars according to the Congressional Budget Office, while at the same time making health insurance and health care more expensive for consumers. Obamacare includes a host of new taxes and expensive regulations that make it less likely that businesses will hire. Obamacare was poorly conceived and executed and is a drag on the economy. It has already been ruled unconstitutional by a federal appeals court in Atlanta. The lawsuit brought by more than half of the states, including Georgia, will soon be heard by the Supreme Court.
As he has frequently reminded us, President Obama did inherit a tough economy from President Bush. However, what makes a president is rising up to handle the hand that has been dealt. Now three years into his presidency, it is the results of President Obama’s decisions that are haunting the nation. If he persists in following the same course, he will continue to get the same dismal results and in January 2013 will leave a worse mess for his successor than he himself inherited.
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