WSJ Op-Ed - What Would Reagan Do?
In today's Wall Street Journal, former deputy assistant treasury secretary under President Reagan, David Malpass, dissects the failing economic policies being advanced in Washington, the resulting disruption in job growth and our nation's skyrocketing debt.
Please take a moment to read the piece below:
By DAVID MALPASS
Wall Street Journal
When Ronald Reagan became president, the world had too much inflation, i.e., too much money chasing too few goods. Economists argued for higher taxes to sop up extra demand. Instead, Reagan chose to cut tax rates to encourage more output and pursued a strong-dollar policy. The result was more goods and a better balance between the supply and demand for the dollar. The malaise ended 18 months into his administration, with inflation declining gradually for nearly 20 years.
We now face a different, equally severe problem—too much government spending and debt. It is disrupting job growth and financial markets across the industrialized world. The current policy response is to keep interest rates super-low for big borrowers (saving governments billions at the expense of savers), increase government spending, and then apply large tax increases.
This approach isn't working. It is rapidly reducing the capital in small businesses and holding back hiring. The result is very fast growth in the national debt, the opposite of the desired outcome. The Congressional Budget Office projects that under the Obama budget unveiled in February, spending will increase to $3.6 trillion in 2010 and $5.7 trillion in 2020 from $3 trillion in 2008.
This plan for profligate government spending creates $20 trillion in marketable Treasury debt by 2020, nearly 2.5 times today's $8.4 trillion burden. It would amount to 90% of the nation's annual output. The International Monetary Fund (IMF) estimates for the U.S. debt are even higher—107% of GDP by 2020, based on its less rosy assumptions about debt service as debt levels rise.
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