Skip to main content
At a time when the American people are searching for a responsible federal budget outlining pro-growth policy initiatives that Congress could enact with bipartisan support, President Obama decided to go in a different direction. Ten weeks late, the president’s budget reflects his belief in a bigger government and a citizenry dependent on it.
When it comes to jobs, America has fallen into a “growth gap” of its own. The current recovery is falling further behind its contemporaries — and many economists now fear our nation has fallen into a new substandard economic norm. While the recent jobs report contained positive news — 246,000 new private-sector jobs and a slight decline in the unemployment rate — the current recovery led by President Obama actually has fallen further behind other recoveries that have taken place since World War II.

Feb 22 2013

What Kind of Cuts Grow the Economy?

Spending reductions must be large, credible, and politically difficult to reverse.

With the automatic spending cuts set to kick in for the federal government on March 1, the media and Keynesian economists are predicting an economic Armageddon. Remember, these are the same people who for the past four years have promised America that the only path to a strong economy is through massive federal spending. The result: one of the worst economic recoveries since World War II and higher unemployment today than when President Obama took office four years ago.

Feb 12 2013

A Lincolnian Economic Primer for Obama

Abe's approach was to provide rules of the road for the private sector and let entrepreneurs compete.

Those parsing President Obama's speech on Lincoln's birthday may not find much of Abraham Lincoln in it, beyond the symbolism. Let us hope that Mr. Obama uses the remainder of his term to get his policies right by Lincoln rather than misconstrue history in an effort to align the 16th president's policies with his own.
The effectiveness of the Fed’s unprecedented monetary morphine is rapidly waning. This makes the Fed’s anticipated initiation of a third round of quantitative easing (QE3) on Thursday all the more baffling. At a time of historically low interest rates, trillions of dollars of excess bank reserves parked at the Fed, and U.S. companies with an equally large amount of cash holdings, most economists believe yet another round of QE will have little effect on either growth or the unemployment rate.

May 15 2012

Saying No to State Bailouts


Right now, the world is wondering if European leaders have the political will to save their economies from fiscal collapse. Defaulting on their debts would trigger a domino effect that threatens the continued existence of the European Union itself. Yet the entrenched interests of labor unions and government pensioners steadfastly refuse to accept cutbacks—even if it means taking their nations' economies down with them.
Could a similar scenario play out in the U.S.? That possibility is raised by a new study to be released Tuesday by the Republican staff of the Joint Economic Committee: Eurozone, U.S.A.—a close examination of the fiscal situation of state governments around the nation.
Its results are humbling. States that have followed Europe's economic policy model of unbridled spending are getting Europe's economic results: low growth and looming fiscal catastrophe.
Compared with the 10 U.S. states with the lowest rates of economic growth since 1990, the states with the highest rates of growth had smaller unfunded pension ratios (by 26%); lower debt ratios (by 18%); less tax revenue collected (by 22%); and lower welfare benefits (by 31%). Our report also shows that over the last decade, states with no income tax have much higher rates of job growth and population growth than states with the highest income taxes.
To their credit, many state policy makers have recognized the unsustainability of high-tax, high-regulation, welfare-state economics. But just as in Europe, many of the states in the deepest trouble seem the least interested in reform—either out of incompetence, ideological blindness, or a cynical expectation that when a crisis hits, someone else will bail them out.
The fuse on the U.S. debt bomb—which according to the National Bureau of Economic Research may be armed with as much as a $211 trillion fiscal shortfall—may prove to be the states' public-employee pension systems. Years of overly optimistic growth projections, underfunding and overpromising by politicians have rendered many of these public pension systems effective toxic assets on states' books. Some jurisdictions around the U.S. already spend more money on retired workers than on current employees, and more on retired teachers than on existing students and schools.
But this gathering storm is about more than just the pensions. It's about policy. In coming years, states with policies that grow their governments (rather than nourish private economies), whether through tax increases, regulation or cronyism, will drive away successful businesses and individuals, further draining their tax bases and exacerbating their fiscal crises. This process has already begun.
Higher taxes called for by California Gov. Jerry Brown to help pay for an "unexpected" 74% increase in the state's budget shortfall this year, and Illinois's recent income tax hikes of 67% on individuals and 30% on businesses, have done and will do nothing to stem the flood of people and businesses out of those states.
Meanwhile, states that confront their problems sooner rather than later, and without shifting the burden onto taxpayers, will be more likely to maintain and attract those same successful businesses and individuals and expand their own economies. In Wisconsin, ending collective bargaining for public-employee benefits in 2011 has helped eliminate the state's budget deficit, generated savings that prevented layoffs, and contributed to a reduction in property taxes. Similarly, pension reforms in Utah, New Jersey and Rhode Island have protected taxpayers from future pension costs.
Yet as big government-low growth states fall deeper into the fiscal hole, the question becomes whether Washington politicians will force taxpayers in more prudent states to bail them out. This cannot be allowed to happen. As the 2008 financial crisis proved, bailouts never solve anything. They only create more problems—moral outrage on one side, and moral hazard on the other.
It is becoming clear that the only way to force recalcitrant states to put fiscal reform on the table is for Congress to take state bailouts off of it. Recent experience on Wall Street and in Athens suggests that if decision makers in Illinois, New York, California or anywhere else believe Washington will bail them out of their fiscal mismanagement, we cannot expect any self-directed reform from them. As our report concludes, Congress must—in word and if necessary in law—make plain that the taxpayers will not protect these states from the consequences of their policies.

Feb 09 2012

New unemployment numbers do not tell the whole story

The Hill's Congress Blog

Whether we care to admit it or not, 2.8 million more people were still out of work in January 2012 than the 12.8 million officially counted as unemployed.

Our labor force should not be shrinking because people stop actively seeking jobs. It should be increasing because, like 243,000 other Americans this month, there are new payroll jobs for them.
“This Congress cannot and should not leave for vacation until they have made sure that tax increase doesn’t happen. Let me repeat that: Congress should not and cannot go on vacation before they have made sure that working families aren’t seeing their taxes go up by $1,000 … I expect all of us to do what’s necessary to do the people’s business, and make sure it’s done before the end of the year.”

Sep 20 2011


Debt impedes job creation

Excessive debt threatens the economic future of the United States. Economists are increasingly sounding alarm bells that the escalating federal debt is reaching unsustainable levels.
A recent paper by three economists at the Bank of International Settlements bluntly notes, “[A]t low levels, debt is good. It is a source of economic growth and stability. But at high levels, private and government debt are bad, increasing volatility and retarding growth.”
Their study examined 18 countries in the Organization of Economic Cooperation and Development from 1980-2010. They found that government debt undermines economic growth when the debt reaches 85 percent of gross domestic product.
The economists Carmen Reinhart and Kenneth Rogoff conducted a study of 44 countries spanning 200 years, and found that central government debt exceeding 90 percent of GDP in advanced economies stunted growth. They noted that war debts are less problematic for future growth than large peacetime debts — since government spending on wars ends, funneling manpower and resources back into the civilian economy.
A peace-time debt explosion, however, often reflects unstable political economy dynamics. Countries seldom grow their way out of these debts, and market interest rates can rise quite suddenly.