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Thursday, July 5, 2012

Economic Growth and the 2012 Election - with Postscript

In 2011, a Congressional "super-committee" was charged with recommending at least $1.5 trillion in deficit reduction over the next ten years. They could not agree on recommendations, triggering an automatic $1.2 trillion in cuts over the next ten years, divided equally between security (defense) and non-security (domestic) budgets. However, this will not start taking effect until 2013, and will only reduce the 2013 budget by $68 billion.[1] The biggest impact will be to the defense budget, and Congress could pass a supplemental bill to restore some of the reductions. Otherwise these cuts would be harmful to our national security.

The super-committee was given a "false dichotomy" to agree on some mixture of spending cuts or tax increases to reduce the deficit. They were apparently not given an option to reduce the deficit by recommending ways to cause economic growth that would reduce the deficit.

And even though some members of the super-committee wanted to recommend actions for economic growth, many Democrats and Republicans in Congress fundamentally disagree on how to achieve economic growth. Republicans favor economic growth through reduced government regulation and more economic freedom, in particular to greatly expand production of conventional energy production (oil, gas, clean coal, nuclear) to rapidly grow US jobs and achieve energy independence. The US economy could resume strong economic growth if this were done.

Apparently most Democrats in the Senate and the President oppose these directions for economic growth. It appears the only kind of energy they want to aggressively develop in the US is solar and wind, for which present technologies are too inefficient to support rapid, near-term national economic growth.[3]

Given this fundamental disagreement in how to achieve economic growth, both parties need to take their different visions for how to achieve economic growth to the American people, asking the people to give one party or the other control of both the Presidency and the Congress in the 2012 elections.

If the Republicans win control of both the Presidency and the Senate, and retain control of the House, then the US economy can resume strong growth, and the additional cuts that sequestration entails over the next 10 years can be avoided. If the Republicans do not win control, we can expect the economy to sink further into recession or depression, mired by the well-intended failed policies of the Democrats.

The 2012 election did not produce a major change in control of the Presidency, House and Senate.  The stage is set for continued deadlock, inaction and economic decline, unless the Congress and the President can find ways to achieve compromise, action and economic growth. This is possible if people are open-minded, willing to compromise, and realistic about their priorities and the consequences of alternative decisions.

One priority ought to be to avoid the sequestration cuts to the defense budget, since these cuts will jeopardize national security, and also cause major job losses and further economic decline for the nation. One way to gain additional revenue would be to cap some deductions for higher-level incomes - this would be preferable to increasing the tax rate for higher-level incomes, if the President and Senate will accept it. If the President and Senate will not accept it, and insist on raising the income rate for higher-level incomes, then the House would apparently need to approve such an increase, to avoid the defense budget cuts - in that case, the House should do so under protest, going on the record to warn that such tax rate increases may cause job losses across the economy. In a choice between job losses on the one hand, and job losses plus reduced national security on the other, we should preserve national security.

Similarly, extending the taxes for social security and medicare to higher-level incomes could resolve the solvency problems for both programs - this may be the best way to save these programs for future generations.

In theory, many of our budget and employment problems can be addressed if we can resume strong economic growth. These writings have argued that to do so, we need an all-of-the-above energy policy. During the election campaign, President Obama again said he favored such a policy. In accepting re-election on Nov. 6, 2012, he said:
"You elected us to focus on your jobs, not ours. And in the coming weeks and months, I am looking forward to reaching out and working with leaders of both parties to meet the challenges we can only solve together. Reducing our deficit. Reforming our tax code. Fixing our immigration system. Freeing ourselves from foreign oil."
Hopefully, President Obama will be open to taking a new look at truly supporting an all-of-the-above energy policy, rather than continuing to actively support only wind and solar energy. Hopefully, he will also take a new look at the topic of global warming, and consider the alternative viewpoints of respected scientists (viz. "Galileo and Global Warming").

[1] The Sequester Option - The spending cuts in 2013 would hardly be onerous. The Wall Street Journal, November 18, 2011.

[2] Moore, Stephen (2011)  How North Dakota Became Saudi Arabia. The Wall Street Journal, October 1, 2011.

[3] Krauthammer, Charles (2011) The Pipeline Sellout - Obama puts politics over  nation, again. National Review Online, November 18, 2011.