New York Stock Exchange
(Photo by Silveira Neto) (CC2.0)
Summary: The eighth SBE Council “Gap Analysis” report highlights the policy changes needed to close the shortfalls in our economy – in areas such as economic growth, private investment, entrepreneurship, productivity, income, jobs and trade. The solutions are based on precedents set during the administrations of recent U.S. presidents.
Unfortunately, since at least early 2007, each major area of federal policymaking – that is, taxes, regulations, trade, government spending and debt, and monetary policy – has been pointed in the wrong direction, that is, overwhelmingly in an anti-growth direction. The numerous ills of tax increases, increased regulation, a lack of leadership on trade, high levels of government spending and debt, and misguided monetary policy are documented.
In terms of getting each major policy area pointed in a positive, pro-growth direction, there is no need to journey into new, uncharted waters. Rather, there are examples of policies implemented during recent presidential administrations – from both Republicans and Democrats in the White House and in Congress over the years – that would make a difference for improving the economy as we look ahead.
Reagan-Clinton-Bush-Plus Tax Relief and Reform. President Ronald Reagan came into office and led the effort for a combination of tax relief and reform, which played a central role in reigniting robust economic growth. For good measure, President Bill Clinton signed a bill into law that provided substantive relief in the individual capital gains tax, as did President George W. Bush. Reform and relief would center on: 1) A two-rate personal income tax of 12.9 percent and 25 percent (including the Medicare income tax) would be a major positive, pro-growth step in providing tax relief and reform. 2) The capital gains tax would be reduced to 15 percent, or even better, 0 percent. 3) The death tax would be eliminated. 4) The corporate income tax would be made internationally competitive by being reduced to at least 25 percent, or lower. 5) Expensing would be an option for all businesses. They tax system would be simpler, which would save everyone – including small businesses – billion in compliance costs.
Reagan-Plus Regulatory Relief and Reform. Over the past nearly nine decades, substantive regulatory relief was only achieved during the Reagan administration, and that did not last. Real, lasting regulatory relief would be achieved by implementing an assortment of institutional reforms, such as improving analysis of regulatory impact on small businesses and establishing a meaningful procedure for engagement and feedback; congressional approval of all rules and regulations before they are imposed; greater use of “formal rulemakings”; strengthening the integrity of scientific data and increasing transparency; sunsetting all rules and regulations so that Congress is required to re-evaluate regulations after a certain period of time; establishing a regulatory budget, which if properly done, could be a tool to achieve greater transparency in terms of regulations and their costs; supermajority votes in Congress to pass bills imposing major regulations on businesses, entrepreneurs and investors; and setting up an independent congressional body to fully analyze proposed and existing rules and regulations.
Reagan-Bush-Clinton-Bush Trade Agenda. The U.S. must re-establish itself as a leader in reducing governmental barriers to international trade, and thereby expanding international opportunities for U.S. entrepreneurs, businesses and workers. Until the Obama administration, this has been a rather consistent effort on both sides of the aisle since the end of World War II. In recent time, Presidents Ronald Reagan, George H.W. Bush, Bill Clinton, and George W. Bush advanced free trade through agreements, and called for expanding trade accords. A pro-trade policy agenda must feature serious efforts on making the Trans-Pacific Partnership (TPP) and the Transatlantic Trade and Investment Partnership (TTIP) realities, as well as working to implement the Free Trade Area of the Americas, a hemispheric free trade area as first called for by Reagan.
Clinton-Plus Effort on Reining in Government Spending. President Bill Clinton, largely with the help of a Republican Congress, took federal outlays as a share of GDP from 21.5 percent at the end of President George H.W. Bush’s administration in 1992 to 17.6 percent in 2000 at the end of Clinton’s years. Capping federal government outlays at a percentage of GDP, with some exceptions for wartime scenarios, would be beneficial for the economy, by limiting the level of resources drained from the private sector, and would force Congress and the president to make true decisions about setting priorities for the nation’s government. Setting a cap just above where the spending was at the end of the Clinton administration – at 18 percent – seems like a reasonable level that could once again earn bipartisan support.
A Carter-Reagan-Bush-Clinton-Bush Effort on Federal Reserve Appointments. Consider that President Jimmy Carter appointed Fed Chairman Paul Volcker, who undertook the costly effort of wringing high inflation out of the economy. He was reappointed by President Reagan. Alan Greenspan was appointed by Reagan, and then reappointed by George H.W. Bush, Bill Clinton and George W. Bush. However, since the economic/financial crisis hit in the summer of 2008, the Fed has implemented a loose money regime that has created a great deal of uncertainty. The next Federal Reserve chairman, along with other Federal Reserve appointments, must understand that monetary policy is about maintaining price stability, not a means for trying to gin up the economy.
Gap Analysis 8: Policy Solutions for Closing the Gaps in Our Economy
Over the past decade, the U.S. shifted from a few years of respectable economic growth to a long and deep recession, and then to one of the worst periods of economic recovery and expansion on record. As the nation looks to a new presidential administration and a new Congress taking power in January 2017, SBE Council has published a series of analyses that highlight key gaps or shortfalls in our economy. The first analysis focused on the GDP shortfall, the second on a lost decade of private investment, the third on the decline of entrepreneurship and millions of missing businesses, the fourth on poor U.S. productivity growth, the fifth on Americans’ suffering lost income, the sixth on lost jobs, and the seventh showing a dramatic shortfall in U.S. exports and decline in small business exporters.
This final report highlights the policy changes needed to close these gaps based on precedents set during the administrations of recent U.S. presidents.
Introduction
This eighth SBE Council “Gap Analysis” outlines a policy agenda central to closing the rather daunting gaps laid out in the previous seven “Gap” reports. Unfortunately, since at least early 2007, each major area of federal policymaking – that is, taxes, regulations, trade, government spending and debt, and monetary policy – has been pointed in the wrong direction, that is, overwhelmingly in an anti-growth direction.
Higher Taxes. On the tax front, the policy agenda has been dominated by tax increases – namely, via the massive tax increase imposed at the start of 2013 and Obamacare. There has also been ongoing threats of tax increases, such as proposed higher taxes on domestic energy producers in each budget proposed by President Obama, discussion of a carbon tax on the U.S. economy, and looming future tax increases tied to rising federal government expenditures due to, in part, ObamaCare and increasing federal government debt. Tax increases always impose costs on the economy, but economists largely from across schools of thought would agree (though their reasoning might be different) that raising taxes during bad economic times is a recipe for making things much worse. That is exactly what has occurred, as after a long, deep recession, the U.S. has limped along during one of the worst recovery/expansion periods on record.
More Regulation. On the regulatory front, the Obama years have proven to be a period of hyper-regulation. In fact, the Obama administration has been particularly activist when it comes to “economically significant” rules, that is, those imposing an annual cost on the economy of at least $100 million. For example, in the latest edition of “Ten Thousand Commandments: An Annual Snapshot of the Federal Regulatory State,” published in May 2016, Clyde Wayne Crews Jr. noted, “the overall number
of ‘economically significant’ rules in the pipeline during the current administration is considerably higher than earlier in the decade. President George W. Bush started an uptick; President Obama continued it, increasing the flow of costly economically significant rules at the completed and active stages.”
This regulatory activism carries significant costs for the overall economy, including diminished investment, innovation, economic growth, as well as increased burdens for small businesses. For example, a study published in April 2016 by the Mercatus Center at George Mason University (authored by Bentley Coffey, Patrick McLaughlin, and Pietro Peretto) looked at the impact that regulations have on investment choices, and therefore, on innovation and economic growth. The authors reported that since 1980, the cumulative effects of regulation slowed the real economic growth rate in the U.S. by 0.8 percentage points per year. If regulation had been held at 1980s levels, the U.S. economy would have been $4 trillion, or 25 percent larger, than it was in 2012. That translated into the loss of $13,000 per capita.
Disproportionate Small Business Impact. In a September 2014 study titled “The Cost of Federal Regulation to the U.S. Economy, Manufacturing and Small Business,” written by economists Nicole V. Crain and W. Mark Crain and published by the National Association of Manufacturers, it was reported, “U.S. federal government regulations cost an estimated $2.028 trillion in 2012 (in 2014 dollars), an amount equal to 12 percent of GDP… Considering all federal regulations, all sectors of the U.S. economy and all firm sizes, federal regulations cost just less than $10,000 per employee per year in 2012 (in 2014 dollars). Small firms with fewer than 50 employees incur regulatory costs ($11,724 per employee per year) that are 17 percent greater than the average firm. The cost per employee is $10,664 for medium-sized firms and $9,083 for large firms. These estimates are consistent with prior studies completed during the past 25 years, which have shown that the cost of regulatory compliance disproportionately affects small firms.”
To get a full picture on the ills of regulation, see SBE Council’s recent report titled “Regulation: Costs, Incentives, and the Need for Reform.”
Weak Leadership on Trade. Regarding trade, over the past near eight years, the U.S. largely has abandoned its global leadership role in advancing freer trade. Make no mistake, reducing international costs and barriers (such as tariffs and quotas) via free trade agreements means expanding opportunities for U.S. entrepreneurs, businesses and workers. Consider that in December 2007, President George W. Bush signed the U.S.-Peru Trade Promotion Agreement into law. That marked the ninth free trade deal – covering a total of 14 nations – signed into law during the Bush administration. For good measure, after leaving office, three deals signed by Bush were awaiting action by the Obama administration and Congress – agreements with Colombia, South Korea and Panama. That record marked, by far, the most action on trade agreements under any U.S. president. The Colombia, South Korea and Panama deals, after some changes, were finally passed by Congress and signed into law by President Obama in 2011.
Subsequently, on October 5, 2015, the U.S. and 11 other Pacific nations – Australia, Brunei Darussalam, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, and Vietnam – announced agreement on the Trans-Pacific Partnership (TPP). For good measure, the Obama administration is negotiating the Transatlantic Trade and Investment Partnership (TTIP) between the U.S. and the European Union.
Signing the remaining Bush agreements in 2011, and advancing the TPP and TTIP were welcome shifts from Mr. Obama’s protectionist rhetoric on the 2008 campaign trail. At the same time, however, the U.S. has abdicated, to a great extent, its global leadership on trade that it held since World War II, and especially since the Reagan administration. For example, it’s hard to argue that the Obama administration has spent any political capital in pushing even the trade deals it supports. This abandonment on trade has contributed to the economic woes experienced over the past decade. (See SBE Council’s recent reports “Perils of Protectionism: Lost Opportunities for Small Businesses and the U.S. Economy” and “Gap Analysis #7: Lost Exports, Lost Small Businesses.”)
Higher Levels of Federal Government Spending and Debt. During and after the last recession, federal government spending expanded at a breathtaking pace, especially when outlays were measured as a share of the economy (i.e., GDP). Consider that federal outlays as a share of GDP climbed somewhat gradually from a recent low of 17.6 percent in both FY2000 and FY2001 to 19.1 percent in FY2007. It subsequently jumped to 20.2 percent in FY2008 and then 24.4 percent in FY2009, which was the highest level of federal spending since World War II. Outlays then fell to 23.4 percent in FY2010 and FY2011, 22.1 percent in FY2012, 20.9 percent in FY2013, and 20.4 percent in FY2014. Outlays then climbed back up to 20.7 percent in FY2015 and an estimated 21.2 percent for FY2016. According to the projections in President Obama’s FY2017 budget proposal, outlays would rise in coming years, reaching 22.4 percent of GDP in FY2021.
Meanwhile, the combination of increased federal spending and a dramatic decline in federal receipts with the recession led to gross federal debt as a share of GDP rising from 62.5 percent in FY2007 to an estimated 105.2 percent in FY2016. As for federal debt held by the public, it increased from 35.2 percent of GDP in FY2007 to 76.5 percent of GDP in FY2016. These levels were not registered since the World War II-era, when gross federal debt hit 114.9 percent of GDP in FY1945 and 118.9 percent in FY1946, and debt held by the public came in at 103.9 percent of GDP in FY1945 and 106.1 percent in FY1946.
These increased levels of federal spending and debt drain resources from more productive uses in the private sector via both taxes and borrowing, with more debt also creating uncertainties or threats about future tax increases.
Unprecedented Monetary Policy. Since the financial meltdown in the summer of 2008, the Federal Reserve has run a monetary policy so loose that it is without any precedent in our nation’s history. The critical point to keep in mind is that the vast expansion in the monetary base by the Fed since September 2008 has overwhelmingly translated into a massive, unprecedented expansion in excess bank reserves (that is, reserves in excess of the reserve requirement set by the Fed). The monetary base went from $875 billion in August 2008 to $3.6 trillion early this month. Meanwhile, excess bank reserves have moved from a mere $1.9 billion in August 2008 to $2.2 trillion in September 2016. That means more than three-quarters of the increase in the monetary base has merely sat as excess bank reserves.
To further drive home this point, a February 2015 analysis of excess reserves by the Cleveland Fed noted, “From 1959 to just before the financial crisis, … excess reserves as a percent of total reserves in the banking system were nearly constant, rarely exceeding 5.0 percent. Only in times of extreme uncertainty and economic distress did excess reserves rise significantly as a percent of total reserves; the largest such increase occurred in September 2001.” Consider that not only have reserves skyrocketed over the last eight years, but excess reserves as a share of total reserves now come in at 95 percent.
What been going on? The Fed has been trying to juice up the economy via loose money for almost eight years now. But since monetary policy is the wrong policy tool, if you will, to try to aid economic growth, the failure of the Fed to boost growth – real GDP growth has averaged a woeful 1.3 percent since the Fed’s loose money kicked in – was inevitable.
The more likely outcome of loose money always is more inflation. Fed policy has not aided economic growth, but rather has undercut growth by creating greater uncertainty regarding the outcome of its policymaking. The fact that excess bank reserves skyrocketed means that the Fed’s loose money actually has failed to spread into and throughout the economy. Hence, no inflation, but also no growth.
The Results? Shortfalls in GDP, Private Investment, Entrepreneurship, Productivity, Income, Jobs and Exports
The results for the economy from this wrongheaded policy agenda have been abysmal. Much of these troubles have been explained in the first seven SBE Council “Gap” analyses:
The first analysis – Gap Analysis #1: The GDP Shortfall – estimated a GDP shortfall of $2.7 trillion (in 2009 dollars) in 2016 thanks to real GDP growth running at less than half the rate it should during a recovery/expansion period.
The second report – Gap Analysis #2: Lost Decade of Private Investment – reported a historic gap or shortfall in private-sector investment over the most recent decade, for example, with real fixed nonresidential investment (or business investment) coming up $1.1 trillion (in 2009 dollars) short of where it should be in 2016.
Gap Analysis #3 – Entrepreneurship in Decline: Millions of Missing Businesses points to an estimated gap or shortfall of between 867,000 and 4.8 million businesses in the U.S. economy.
“Gap Analysis #4 – The Productivity Shortfall: Causes and Results” noted that dramatic slowdown in productivity growth in recent years, with annual labor productivity growth averaging a woeful 0.4 percent from 2011 to 2016, compared to average annual growth of 2.0 percent from 1956 to 2016.
“Gap Analysis #5: Americans’ Lost Income” reported that if per capita real personal disposable income grew at the average historic rate since 2009, real per capita personal disposable income in 2015 would have been $2,000 higher (2009 dollars) on average for individuals, and $8,000 higher for an average family of four.
GAP Analysis #6: America’s Lost Jobs showed dramatic shortfalls in the U.S. labor force and in job creation, in particular, noting that the U.S. effectively is suffering from a shortfall of 8.1 million jobs.
“Gap Analysis #7: Lost Exports, Lost Small Businesses” showed dramatic shortfalls in U.S. exports, registering a shortfall as large as $635 billion in 2016, and big declines in the number of U.S. exporting firms, including 49,800 missing small exporting firms with fewer than 100 workers.
Policy Solutions to Close the Gaps in the Economy
In terms of getting each major policy area pointed in a positive, pro-growth direction, there is no need to journey into new, uncharted waters. Certainly innovative ideas are needed to fully reform government and alter policies than enable robust growth, but there are examples of tax, regulatory, spending, trade and monetary policy implemented during recent presidential administrations – from both Republicans and Democrats in the White House and in Congress over the years – that would make a significant difference for economic growth as we move forward.
Real Results
Growth Under Reagan: It is important to note the impact of the Reagan era policies of both tax and regulatory relief. Regulatory relief occurred throughout the decade, but President Ronald Reagan’s initial tax cuts were not fully phased in until the start of 1983. Subsequently, from 1983 through 1989, real GDP growth averaged a robust 4.6 percent – which ran ahead of the average growth rate for recovery/expansion periods over the six decades from 1956 to 2016. For good measure, from December 1982 to December 1989, U.S. employment increased by a robust 20 million.
Clinton’s Performance: Congress passed and President Bill Clinton signed into law a capital gains tax cut – dropping the rate from 28 percent to 20 percent – that took effect in 1997. In fact, economic growth picked up markedly from 1997 to 2000, with real GDP growth averaging 4.5 percent, and each year seeing real GDP growth in excess of four percent. Of course, investment also was robust in the late 1990s, with annual venture capital investment, for example, jumping by 855 percent from 1996 to 2000. Along with such growth came increases in capital gains tax revenues, from $56 billion in 1996 to $99 billion in 1999, according to economic and budget expert Steve Moore.
The Bush Years: It’s also worth noting that while the U.S. economy has under-performed from 2001 forward, the years of strongest growth came after the President George W. Bush’s tax cuts were fully phased in in 2003 (including reduced personal income and capital gains taxes), with real GDP growth averaging 3.3 percent from 2003 to 2005, which was far above the 1.8 percent average rate of real GDP growth from 2001 to 2016. For good measure, during the decade of 2001 to 2010, venture capital investment only saw steady growth during the period of 2004 to 2007.
A Policy Platform for Growth
Reagan-Clinton-Bush-Plus Tax Relief and Reform. With both tax increases and increased complexity in the tax code that have been imposed since, with notable exceptions, the early 1990s, the need for both tax relief and reform should be clear. The U.S. confronted a similar situation heading into the 1980s. President Ronald Reagan came into office and led the effort for a combination of tax relief and reform, which played a central role in reigniting robust economic growth. For good measure, and as noted above, President Bill Clinton signed a bill into law that provided substantive relief in the individual capital gains tax, as did President George W. Bush.
Tax reform and relief today might be referred to as the Reagan-Clinton-Bush-Plus Tax Reform:
• Two Personal Income Tax Rates with a Top Rate of 25 Percent. Return to a two-rate personal income tax system, similar to the one prevailing at the end of the Reagan administration. Currently, personal income tax rates range from 12.9 percent to 43.4 percent (including the Medicare income tax). The Reagan two-rates were 17.9 percent to 28 percent (again, including the Medicare income tax which was then capped at $135,000 in earnings). A two-rate personal income tax of 12.9 percent and 25 percent (including the Medicare income tax) would be a major positive, pro-growth step in providing tax relief and reform.
• Capital Gains Tax Reduced to 15 Percent, or 0 Percent. As for the capital gains tax, it should be reduced from the current rate of 23.8 percent to 15 percent, as it was under Bush’s tax cut. Of course, an even more pro-entrepreneur, pro-investment, pro-growth measure would be the elimination of the capital gains tax. Currently, a capital gains exclusion is available for investments in startups, but this only applies to C-corps and there are holding period restrictions. Lifting the holding periods and liberalizing the exclusion for all startups regardless of how they are structured, would add more power to this tax measure. But, again, why not eliminate capital gains taxes period?
• No Death Tax. Under the Bush tax cut agenda, the death tax was phased down from 55 percent in 2001 to 45 percent in 2009, scheduled for elimination in 2010, and then set to return in 2011 at 55 percent. However, subsequent legislation imposed a death tax rate of 35 percent for 2010 and 2011, and 40 percent thereafter. This tax on assets at the time of death, and after paying a lifetime of taxes, should be eliminated permanently as originally envisioned under the Bush tax agenda.
• Corporate Income Tax of 25 Percent. The Reagan tax measures reduced the corporate tax rate from 46 percent to 34 percent. It now stands at 35 percent, which when combined with the average state rate, ranks as the highest rate among developed economies. The federal corporate income tax rate should be reduced to 25 percent, at a minimum, making it more competitive internationally.
• Expensing Option for All Businesses. Currently, small businesses can expense capital expenditures (that is, write off those expenses in the year in which they are made, as opposed to depreciating them over a longer period) up to $500,000 in a year (with that level indexed for inflation going forward). Expensing should be an option for all businesses for all capital expenditures.
Reagan-Plus Regulatory Relief and Reform. As noted in SBE Council’s recent report titled “Regulation: Costs, Incentives, and the Need for Reform,” regulation has been on the rise for decades, and while Congress and President Ronald Reagan worked together during the 1980s to rein in regulatory costs, that was a unique achievement in recent history. Afterwards, regulatory activity and costs resumed their growth. The SBE Council report laid out eight reforms needed to change the system so that substantive and lasting relief from onerous, misguided regulations can be achieved:
• Improving Analysis of Regulatory Impacts on Small Businesses. Regulatory agencies should be required to examine not just regulations’ direct economic impacts on small businesses, but also their indirect effects, such as higher energy and commodity prices that can result from onerous rules. Regulators must also seek the input and feedback of small businesses at the very start of rulemakings, and all agencies should be required to engage with the small business community during the rulemaking process.
• Independent Congressional Regulatory Analysis. Rather than relying on analyses from the Office of Management and Budget or agencies themselves, Congress needs an independent means to analyze rules and regulations, such as subjecting them to rigorous cost-benefit analysis, especially for the consideration of regulatory legislation, and for purposes of evaluating existing rules and regulations.
• Congressional Approval of Rules and Regulations. Given that Congress has incentives to pass regulatory measures, but leave the actual details of creating and imposing rules, mandates and regulations to agency bureaucrats, the system amounts to regulation without representation. It is critical to establish full responsibility for regulating to Congress. Therefore, before being finalized and imposed, all rules and regulations – at least “major rules” – should be subject to votes in Congress.
• Sunsetting Rules and Regulations. All new and existing rules and regulations should have a definitive lifespan, so that Congress is required to re-evaluate regulations after a certain period of time.
• Greater Use of Formal Rulemakings. For rules that impose significant costs to the economy, federal agencies should be required to engage in so-called “formal rulemakings.” These are similar to court proceedings, in which bureaucrats, and the scientific and other economic claims they invoke, are scrutinized and cross-examined by opposing parties.
• Strengthening the Integrity of Scientific Data and Increasing Transparency. Agencies such as EPA should be required to publicly disclose any scientific studies or data used to justify a federal rulemaking before it can be proposed, disseminated, or finalized. Agencies should ensure that such studies are the best available and their conclusions fully reproducible.
• Regulatory Budget. More information and greater transparency regarding federal regulations is desirable, and a regulatory budget, if properly done, could be a tool to achieve such goals.
• Supermajority Votes. Given the costs of regulatory burdens on businesses, entrepreneurs, workers, and investors, requiring a supermajority vote (such as 60 percent in each chamber of Congress) to pass bills imposing major regulations on businesses, entrepreneurs and investors would be a check on the bias to regulate.
Reagan-Bush-Clinton-Bush Free Trade Agenda. The U.S. must re-establish itself as a leader in reducing governmental barriers to international trade, and thereby expanding international opportunities for U.S. entrepreneurs, businesses and workers. Until the Obama administration, this had been a rather consistent effort on both sides of the aisle post World War II. In recent times, Presidents Ronald Reagan, George H.W. Bush, Bill Clinton, and George W. Bush advanced free trade through agreements, and called for expanding trade accords. Consider, for example, that it was Ronald Reagan who, during the 1980 campaign called for a free trade accord with Mexico. Reagan also negotiated and signed a free trade agreement with Canada. President George H.W. Bush then negotiated NAFTA, an agreement between the U.S., Canada and Mexico, and Bill Clinton signed it into law. And we’ve already noted George W. Bush’s pro-trade record. The U.S. needs to get back on a growth track by following the leads of these and most presidents since World War II, and lead the way on advancing free trade, such as with serious efforts on:
• making the Trans-Pacific Partnership (TPP) and the Transatlantic Trade and Investment Partnership (TTIP) realities,
• and working to implement the Free Trade Area of the Americas, a hemispheric free trade area first called for by Reagan.
Clinton-Plus Effort on Reining in Government Spending. President Bill Clinton, largely with the help of a Republican Congress, took federal outlays as a share of GDP from 21.5 percent at the end of President George H.W. Bush’s administration in 1992 to 17.6 percent in 2000 at the end of Clinton’s years. That was the lowest level of federal expenditures since 1966. And it certainly could not be said that this level of government spending was somehow inadequate to fulfill government’s core duties.
Capping federal government outlays at a percentage of GDP, with some exceptions for wartime scenarios, would be beneficial for the economy, by limiting the level of resources drained from the private sector, and would force Congress and the president to make decisions about setting priorities for the nation’s government. Setting a cap just above where spending was at the end of the Clinton administration – at 18 percent of GDP – seems like a reasonable level that once earned bipartisan support.
A Carter-Reagan-Bush-Clinton-Bush Effort on Federal Reserve Appointments. Fighting off the inflation of the 1970s and early 1980s created a longtime bipartisan consensus that the Federal Reserve should be independent, and led by a chairman serious about maintaining price stability. Consider that President Jimmy Carter appointed Fed Chairman Paul Volcker, who undertook the costly effort of wringing high inflation out of the economy. He was reappointed by President Reagan. Alan Greenspan subsequently was appointed by Reagan, and then reappointed by George H.W. Bush, Bill Clinton and George W. Bush. Since then, however, Ben Bernanke and Janet Yellen have led the Federal Reserve, and starting with the economic/financial crisis that hit in the summer of 2008, the Fed, as already explained, has implemented a loose money regime that has created a great deal of uncertainty. The next Federal Reserve chairman, along with other Federal Reserve appointments, must understand that monetary policy is about maintaining price stability; and it is not a means for trying to gin up the economy.
Conclusion
For more than eight years now, major areas of federal policymaking have been pointed in the wrong direction. Closing the massive gaps in our economy – including when it comes to economic growth, investment, entrepreneurship, productivity, income, job creation and expanding opportunities in trade – means implementing a dramatic shift in policymaking, along the lines of what is laid out in this report. If U.S. policymakers do not act accordingly, then the shortfalls will only expand, and the relative decline of the U.S. economy will persist. We have lessons from recent presidents on what to do in certain policy areas. All that is needed is the vision and determination to act.
Originally published on SBECouncil.