There are many significant challenges to our economic recovery: Deficit Spending, Over Regulation, Obama Care,and Trade Balance. First and foremost we must overcome the $2 trillion spending spree left to the United States by 111th Congress and President Obama. Second, we must focus reduce the burden of Over Regulation that is choking the life out of so many businesses. Thirdly, replace Obama Care with common sense legislation that uses the free-market system to find better care to the customer, innovate new procedures and medications, and reduce the cost to allow all Americans to have world class medical care. Finally, we must have a competitive trade balance with those countries that want to trade with the United States.
Deficit Spending - The small-minded Keynesian view that the government must spend inordinate amounts of dollars in order to overcome the economic recession has resulted in a mountain of debt that cannot easily be wiped away and has not reversed, in a significant manner, our economic situation. Without getting into the technicalities of Keynesian or Austrian Models of economics, suffice it to say that the Keynesian model is based upon the belief that economic equilibrium is not derived from supply and demand, but rather by lack of spending and animal spirits. In contrast, the Austrian Model is based upon the belief that the economic equilibrium is a balance between supply and demand, influenced by customer satisfaction.
President Obama and the 111th Congress, along with the Federal Reserve, are firm believers in the Keynesian model and have used the good faith and credit of the United States to borrow over $2 trillion and flood the market with over $1 trillion worth of securities (known as quantitative easing). Two years and $3 trillion later, there is an economic recovery that is comparable to the recovery from the Great Depression -- that took over 10 years. The current path the Administration has for the recovery will take at least seven years (Bernake's testimony), and could result in a lowering of the credit rating of the United States.
Solving this complex problem requires a complex solution. That is to say, we must look at the solution to the problem in a manner that is neither conventional or easy. The solution includes addressing the current debt ceiling along with spending only what current revenues allow. A difficult pill to swallow, but one that must be swallowed. Governor Pawlenty eloquently put forth a plan which pays our creditors first, then required entitlements, then defense, and finally everything else. This provides a sound way-ahead though I caveat his plan with a fixed debt ceiling that does not exceed the current limit. This is draconian, but necessary. Just as families must tighten their belts, our government must do the same.
Over-Regulation: The Financial Reform legislation tries to make financial transactions fair, a lofty goal, but unrealistic in a market economy. Take the ability of an investor (individual or corporate) to deduce or induce information that leads to a sound investment. Is it fair or just? In this Administration's view, it would not be fair because not everyone has the same information. This is absolutely wrong, so long as the information was not obtained through espionage or other illegal means. It is just, however, because the person or corporation invested resources to deduce the information. To make a profit, one must gain the information first, then decide to act upon that information. Requiring all information to be distributed before acting upon that information will not allow for wealth creation, but rather it rations the wealth to make it fair. Absolutely wrong! Current regulatory reform imposes restrictions in order to ration wealth building and make it fair.
Obama Care: This topic is also related to being fair. It attempts to answer the question, "Is it fair that most Americans have health insurance while some do not?" It's not that almost every American can receive the best health care in the world, but rather it's an attempt to make it fair for every American to receive health care. The US health care system is one that is based upon insurance companies that receive premiums and make decisions on what is affordable to maintain a profit. However, insurance companies do not have to compete on a national basis, just on a statewide basis. This allows insurance companies to corner the market in their states. Allow interstate competition, much like auto insurance, and let the market and consumers decided which companies should survive and make a profit for the company investors.
How do people that cannot afford health insurance get medical care? This is where the government can subsidize some form of basic coverage, e.g. Medicare and Medicaid. However, these are tied to a universal social net, such as unemployment insurance or welfare. The combination of opening markets and limiting government insurance should allow more people to join private insurance, expand opportunities for private health care, and increase government revenues due to increased use taxes and fees.
Trade Balance: Easier written than done. Fair trade and free trade are not synonymous. Fair trade is government intervention into trade between nations that attempts to negate another nation's competitive advantage through regulation. Fair trade attempts to ration the supply of goods traded between the two nations so that there's a fair balance of goods imported and exported. Free trade allows the competitive advantage of the industries within the nations to build trade based upon consumer demand and consumer satisfaction, thus creating wealth on both sides of the trade.
This Administration is overly focused on fair trade, thus negating the competitive advantage of the United States. The success of Free Trade Agreements, and they are successful when no political policies are attached, require faith in the competitive advantage of one's Labor, Capital, and natural resources. Clearly, this Administration does not have that faith. Nor does it have faith in the ability of the entrepreneurs to innovate in a manner to increase the competitive advantage. The Administration would rather place its faith in restricted trade, organized labor, and rationed capital.
When this Administration begins to accept the basic principles of the points so far noted, then the economy will begin to truly recover from the worst recession since the Great Depression. Most pundits will call this acceptance a move to the political center and a big step towards reelection. Perhaps, but the United States can ill afford a repeat of the last two years.
