How 4% Growth Can Reduce the Debt

With the right economic policy America can be robust again, and the United States can continue to lead the world toward greater safety and happiness.

“He retreats to the conference room and plays spades for hours, maintaining a trash-talking contest all the while,” says The New York Times, describing how Barack Obama spends his time.

It’s too bad.

Otherwise, he might have known instead how to avoid the sequester about to throw the defense budget, along with America’s national security, deeper into the downward spiral he’s dug in the economy.

Too Willing to Tax and Spend

In remarks about his dysfunctional budget, Obama proposed a mix of higher taxes and more spending than allowed under the very same sequester he created in 2011.

Tax and spend was his theme on the podium, with him emphasizing the combination five times in remarks comprised of little more than 1,000 words and lasting a brief seven minutes.

Growth America Needs

It’s also too bad that Obama’s remarks only mentioned “growth” once and in passing, because such a focus is the basis not only for raising the standard of living, but also for cutting the debt that inspired Obama’s game of sequester, as explained by the Federal Reserve:

Historically, GDP growth has been the key ingredient for reducing the effective size of the U.S. debt. [The above figure] shows that the U.S. gross debt-to-GDP ratio declined from a post-war high of over 120 percent in 1946 to just under 38 percent by 1970. [The figure] also shows that this decline was not due to the government running surpluses, but almost entirely due to GDP growth: The average budget gap was a deficit equal to a half percent of GDP, as the government ran deficits in over two-thirds of the years covered. But because GDP grew on average 3 percent per year over this period, the ratio of gross debt to GDP fell precipitously.

Economic activity is all about growth, not taxing and spending in pursuit of some arbitrary standard of fairness set by government.

Opportunity Trumps Fairness

Instead, America needs an economy based on opportunity — where growth is given top priority, the government spends within its means, and hard work is rewarded.

It would be a welcome change away from Obama’s disappointing waste of rate-limiting time with corresponding results in the economy.

References

Peter Baker, “Education of a President,” The New York Times Magazine, (October 17, 2010), MM 40.

Graham Bannock et al., “Economic Growth,” in The Economist: Dictionary of Economics (New York: John Wiley & Sons, 1998), 111-112.

George W. Bush, foreword to The 4% Solution: Unleashing the Economic Growth America Needs, ed. Brendan Miniter (New York: Crown Business, 2012), xi-xiii.

Peter F. Drucker, The Effective Executive, Revised edition (New York: Harper Business, 2006), 25.

Brett W. Fawley and Luciana Juvenal, “Why Health Care Matters and the Current Debt Does Not,” The Regional Economist Vol. 19, No. 4 (October 2011), 4-5.

Office of the Press Secretary, “Remarks by the President,” The White House, February 5, 2013, accessed February 7, 2013, http://www.whitehouse.gov/the-press-office/2013/02/05/remarks-president.

Review & Outlook, “The Unscary Sequester,” The Wall Street Journal, February 7, 2013, A14.

St. Petersburg Times, “Mostly False: Barack Obama says Congress owns sequestration cuts,” PolitiFact, October 24, 2012, accessed February 7, 2013, http://www.politifact.com/truth-o-meter/statements/2012/oct/24/barack-obama/obama-says-congress-owns-sequestration-cuts.

Van Doorn Ooms et al., “The Federal Budget and Economic Management,” in Handbook of Government Budgeting (San Francisco: Jossey-Bass, 1999), 197-226.

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