Six ways to fix the US economy

Reuters

U.S. President Barack Obama gestures as he speaks to the media about the "fiscal cliff" in the White House Briefing Room in Washington December 19, 2012.

Article Highlights

  • As President Obama approaches this legislative season, he has a chance to learn from his successes and failures.

    Tweet This

  • Smart cuts will lower the spending trajectory, and reap huge benefits far down the road writes @AEIecon’s Kevin Hassett.

    Tweet This

  • The US has an opportunity to radically increase the production of natural gas, an environmentally friendly energy source.

    Tweet This

As President Obama approaches this legislative season, he has a chance to learn from his successes and failures, and position himself to maximize the chance that sound policies are enacted.  To do that, he needs to take 6 steps.

Take things one at a time.  The tax deal that was just accomplished was part of the puzzle, but spending is up next. It might be tempting to try to deal spending cuts for tax increases, but that will never work. There are just too many moving parts to take everything on all at once.
"Smart cuts will lower the spending trajectory, and reap huge benefits far down the road." - Kevin Hassett
Make spending concessions that appeal to your Keynesian instincts. You are concerned that looming spending cuts will cause significant harm to the economy this year. The fact is, a dollar ten years from now is worth about 61 cents today if the interest rate is 5 percent. Smart cuts will lower the spending trajectory, and reap huge benefits far down the road. Given the way Washington talks about spending, that creates a political opportunity. Trade spending cuts in the future for spending cuts today, and do so at a rate that is at least 2 for 1. That will reduce the harm to the economy from a rapid reduction in spending, and provide you with an opportunity to be a statesman and give the Republicans more cuts without sacrificing your beliefs.

Offer Republicans a chance at real tax reform. Republicans want lower tax rates, you want more revenue. Republican plans, like the Romney plan, generally take all of the base broadening revenue and put it back into rate reductions. If you want Republicans at the table, instruct your allies in Congress to offer the Republicans a deal. If they give you a certain amount of revenue, you will give them fundamental tax reform.

Pursue immigration reform aggressively. Getting more output requires more inputs. Tax reform could increase capital formation, but a large influx of high skilled labor would also magnify economic growth. A vast expansion of legal immigration could feed the next economic boom."The nation has an enormous opportunity to radically increase the production of natural gas, an energy source that is environmentally friendly." - Kevin Hassett

Frack away. The nation has an enormous opportunity to radically increase the production of natural gas, an energy source that is environmentally friendly. Instruct your regulators to develop a plan to sharply increase drilling activity, while protecting the environment from the side effects of drilling.  There is a real risk that red tape will slow developments in this sector, and fast action could create many more North Dakotas.

Let others get the credit. The fact is, any legislation is going to require Republican support.  Ronald Reagan had a plaque on his desk that read, “There is no limit to what a man can do or where he can go if he does not mind who gets the credit.” Let your allies in Congress know your objectives, then see if they can get close to achieving them in negotiations. Let your opponents know that you support your allies in Congress, then wait to speak to the public until there is something on the table that has a chance of becoming law. Then, when there is a success, credit all the parties graciously for their joint accomplishment. That sets the stage for future successes far better than the touchdown dance you engaged in after the tax agreement.

Most Americans probably have little confidence that the president and Congress will be able to work together this year to address the challenges that we face as a nation. If President Obama reverts to old habits, they may be right. But if he can take a few of these steps, then we have a significant chance of starting 2014 in a better place. The economic upside is enormous.

Kevin Hassett is director of economic policy studies at the American Enterprise Institute and a former senior economist at the Board of Governors of the Federal Reserve System. The views expressed are his own.

Also Visit
AEIdeas Blog The American Magazine
About the Author

 

Kevin A.
Hassett
  • Kevin A. Hassett is the State Farm James Q. Wilson Chair in American Politics and Culture at the American Enterprise Institute (AEI). He is also a resident scholar and AEI's director of economic policy studies.



    Before joining AEI, Hassett was a senior economist at the Board of Governors of the Federal Reserve System and an associate professor of economics and finance at Columbia (University) Business School. He served as a policy consultant to the US Department of the Treasury during the George H. W. Bush and Bill Clinton administrations.

    Hassett has also been an economic adviser to presidential candidates since 2000, when he became the chief economic adviser to Senator John McCain during that year's presidential primaries. He served as an economic adviser to the George W. Bush 2004 presidential campaign, a senior economic adviser to the McCain 2008 presidential campaign, and an economic adviser to the Mitt Romney 2012 presidential campaign.

    Hassett is the author or editor of many books, among them "Rethinking Competitiveness" (2012), "Toward Fundamental Tax Reform" (2005), "Bubbleology: The New Science of Stock Market Winners and Losers" (2002), and "Inequality and Tax Policy" (2001). He is also a columnist for National Review and has written for Bloomberg.

    Hassett frequently appears on Bloomberg radio and TV, CNBC, CNN, Fox News Channel, NPR, and "PBS NewsHour," among others. He is also often quoted by, and his opinion pieces have been published in, the Los Angeles Times, The New York Times, The Wall Street Journal, and The Washington Post.

    Hassett has a Ph.D. in economics from the University of Pennsylvania and a B.A. in economics from Swarthmore College.

  • Phone: 202-862-7157
    Email: khassett@aei.org
  • Assistant Info

    Name: Emma Bennett
    Phone: 202-862-5862
    Email: emma.bennett@aei.org

What's new on AEI

image The Census Bureau and Obamacare: Dumb decision? Yes. Conspiracy? No.
image A 'three-state solution' for Middle East peace
image Give the CBO long-range tools
image The coming collapse of India's communists
AEI on Facebook
Events Calendar
  • 21
    MON
  • 22
    TUE
  • 23
    WED
  • 24
    THU
  • 25
    FRI
Wednesday, April 23, 2014 | 12:00 p.m. – 1:30 p.m.
Graduation day: How dads’ involvement impacts higher education success

Join a diverse group of panelists — including sociologists, education experts, and students — for a discussion of how public policy and culture can help families lay a firmer foundation for their children’s educational success, and of how the effects of paternal involvement vary by socioeconomic background.

Thursday, April 24, 2014 | 12:00 p.m. – 1:30 p.m.
Getting it right: A better strategy to defeat al Qaeda

This event will coincide with the release of a new report by AEI’s Mary Habeck, which analyzes why current national security policy is failing to stop the advancement of al Qaeda and its affiliates and what the US can do to develop a successful strategy to defeat this enemy.

Friday, April 25, 2014 | 9:15 a.m. – 1:15 p.m.
Obamacare’s rocky start and uncertain future

During this event, experts with many different views on the ACA will offer their predictions for the future.   

No events scheduled this day.
No events scheduled this day.
No events scheduled this day.
No events scheduled today.
No events scheduled this day.