In order to build a strong economy, America needs a responsible and pro-growth fiscal policy. The best approach to fiscal policy is a comprehensive one. Many failures in fiscal policy are the result of trying to solve problems piecemeal. Thanks to the resiliency of American business, our economy can still grow without disciplined and comprehensive fiscal policy – like now. But a piecemeal approach usually results in a less robust economy, slower job growth, and is more prone to slipping back into recession.
To achieve a sound comprehensive fiscal policy, it must be a bi-partisan plan. Legislative leaders know that the only way to pass meaningful fiscal policy requires cooperation and compromise. The economy has strengthened and is still improving, but the recovery has been uneven and took longer than any other since the Depression. It could have happened sooner with better fiscal policy and less gridlock.
Overcoming persistent gridlock will require both parties to focus more on governing and less on partisan bickering. This will necessitate courage from both center-right Republicans and center-left Democrats, to curtail the influence of the far right and far left radicals in their respective parties. Highly partisan politics and the radicals are preventing the compromise and bi-partisanship needed to formulate good fiscal policy. More moderate members of Congress need to take the lead if we are to get our financial house in order. Our country’s needs are far more important than that of either party.
The greatest long-term threat to America’s economy is its large and growing national debt. Our historically high debt level, along with the portent of China becoming the world’s economic superpower and gaining control of global financial rulemaking, requires a new direction in fiscal policy.
The high-debt path that we are on is similar to the same one Greece has gone down to get into so much financial trouble. The way the European Union is playing hardball with Greece could be a glimpse of how an economically dominate China may deal with a highly indebted America in 10-15 years. For now, U.S. fiscal policy should make elimination of annual deficits and reduction of the national debt its primary goals until this threat is diminished.
There’s also the question of fairness in regards to our colossal national debt – we are shamefully passing on mountains of debt to future generations. If we continue our current fiscal practices, it will be our children and grandchildren who will be unfairly burdened. At a minimum, until we substantially reduce the national debt as a percentage of Gross Domestic Product (GDP), there should not be any more spending increases or tax cuts. But even that probably won’t be enough.
What it will really take is sacrifice. It most likely means accepting less in benefits and/or paying more taxes. This is the opposite of what most of us want, but it’s not a question of whether we will need to sacrifice, but when, and who. I dislike the thought of losing some benefits and paying higher taxes, but even more, I hate the thought of wrongly shackling our children and grandchildren with the massive debt we have run up the past fifteen years.
The longer sacrifices are put off, the more painful tomorrow’s remedies will be, and the weaker America will be. Now is the time – in a strengthening economy – for responsible, comprehensive and bi-partisan fiscal policy. We shouldn’t wait until there is a crisis and we have less room to maneuver.
Sound comprehensive fiscal policy starts with good strategy, and includes clear goals and objectives. The goals should be 3-4% growth of GDP, low inflation, a lower national debt to GDP ratio, and a balanced budget over the business cycle. And the focus should be on long-term, not short-term, objectives; including: Tax reform, gradual changes to entitlement programs over 25-50 years, and maintained control of discretionary spending.
Economic policies also need to be predictable and consistent, so that people and businesses can plan with confidence. Taking these steps will provide people assurance that taxes will not continue to rise, and that uncontrolled deficits will not return.
This kind of fiscal discipline will promote economic prosperity and job growth – like we had for most of the 1980s and 1990s. It will also allow us to build some flexibility back into our fiscal and monetary systems that are sorely missing at this time. Most importantly, it will reduce the worry of a future financial calamity.
In addition, this type of fiscal policy would demonstrate to bond markets that the dollar on solid footing, and reassure and bolster stock markets. Less borrowing by the government will free up capital for private investment, which also leads to a stronger economy. It’s in this type of economic environment that an upward cycle of prosperity and growth can begin and be sustained.
This is the fifth of a series of blogs that I plan to write about the economy and U.S. fiscal policy. I’m asking my readers to follow along as I propose what I think would be an effective bi-partisan and comprehensive plan.
Links to related blogs:
Greece’s Troubles: http://www.commonsensecentrist.com/what-america-should-learn-from-greeces-troubles/
China’s emergence as largest economy: http://www.commonsensecentrist.com/a-coming-new-order-in-global-financial-systems/
China and U.S. national debt: http://www.commonsensecentrist.com/china-why-deficits-and-the-u-s-national-debt-matter/
Budget concerns: http://www.commonsensecentrist.com/the-federal-budget-were-getting-boxed-in/
Economic growth: http://www.commonsensecentrist.com/growing-the-economy-the-road-ahead/
Fiscal policy: http://www.commonsensecentrist.com/leadership-not-misleadership/
Deficit reduction: http://www.commonsensecentrist.com/passing-the-buck-really-big-bucks-2/