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For Meltzer, the courageous, damn-the-sages stance that Thatcher took three decades ago should guide President Obama today. "If Obama announced a strategy to deal with the long-term debt and stopped doing things to increase the uncertainty that businesses face, it would do a great deal to stimulate the economy," declares the 82-year old Meltzer. Meltzer is right, and most of the "experts" -- from Paul Krugman to Ben Bernanke -- are wrong. The best stimulus is a solid, credible plan to radically reduce government spending, starting right now.
To be sure, President Obama frequently advocates shrinking deficits in future years. The problem is that he wants to keep spending heavily today, in what's supposedly a classic Keynesian formula for charging a weak recovery and lowering unemployment.
But that formula isn't what Keynes recommended. "Keynes championed temporary deficits to stimulate consumption during recessions," says Steve Hanke, an economist at Johns Hopkins. "But he also insisted that deficits disappear during recoveries, so that budgets would be balanced or in surplus during most of the business cycle."
Today, the administration is pursuing a totally different policy. It's sharply raising expenditures when the U.S. already faces gigantic, chronic deficits that barely shrink even in a recovery, and burgeoning debt. "Keynes specifically warned against structural deficits when both U.S. and British economists were pushing for them at the end of World War II," says Meltzer. "He never said that more spending on top of chronic deficits was a stimulus. Just the opposite, in fact."
The Obama administration is calling for an extra $316 billion in "stimulus" spending in addition to the $862 billion already appropriated. The rub is that the all of the "stimulus" money is being borrowed, and that's adding to already mushrooming debt. Right now, the CBO forecasts deficits of $1.25 trillion or an immense 5.6% of GDP in 2020 -- and that's following a strong recovery. That year, the federal debt will reach 90% of national income, putting the U.S. in the fragile position of a Greece or Portugal. Interest payments will absorb one dollar in every six of federal spending.
The rub is that the shadow of inexorably rising debt, with no plan to curb it, isn't a stimulus at all, but a heavy depressant. The solution is to sharply reverse course and bring the budget into balance over the next decade. That solution will require either a 50% increase in taxes, a 35% reduction in spending, or some combination of the two. The weight should fall heavily on the spending side.
That blueprint would prove a powerful tonic for the economy for four reasons -- call them the four growth factors. First, it would dramatically raise the labor supply by allowing Americans to pocket more of their pay. Second, it would prevent real interest rates from soaring and crippling private investment. Third, it would encourage companies to stop hoarding cash and make the big investments in factories and computers that always drive a recovery. And fourth, it would enormously boost investors' confidence in America's future by showing that, like Thatcher long ago, our leaders won't get swamped by chaos, and really have a plan.
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Put simply, if investors are convinced that Washington has a plan to restore fiscal balance, they'll be content with lower returns on their stocks, bonds and buildings for a simple reason: those returns will prove more stable and predictable. That comfort level, in turn, lowers risk premiums and raises the prices of equities, corporate bonds, houses, and office towers.
Right now, many investors and managers are simply terrified by the absence of a roadmap to avoid ruinous debt. "We need to know that Washington can make tough choices, that our leaders are willing to do things that are unpopular," says Paul Willen, an economics professor at MIT. "More than anything, people need to feel that this is not out of control."
ideological dribbles at best, if he's even half intellectually honest, he'd not purposefully choose to ignore that the federal deficit started to balloon under the watch of Reagan, the conservative deity on everything. he also willingly ignored the fact the political realty on the ground means that it'd be political suicide for obama or anybody else to really "cut" cuz the three biggest federal expenditure item: social security, medicare and military, are as much an sacred cow to the republicans or even the tea-baggers as it is to the democrats. remember the dude who screamed "hands off my medicare, you big fat evil government"? not to mention two of the biggest budget-busting events over the last ten years, the wars in iraq and afghanistan, were supported across board by the same people who are accusing obama of being soft on deficit. you're not serious because you don't have the gut to admit reality and say, let alone do, the obvious cuz doing so would prick the little bubble your constituency lives in, therefore, cost your your votes for next election, in another word, the same kind, IMHO, even uglier sort, of politicking "fiscal hawks" are accusing obama of. bush was voted into office ostensibly as an small government republican, the first thing he did, long before 911, was to ram a tax cut bill through congress that made surplus disappear almost overnight. you had your chance, you didn't deliver. time to move on or at least do some rehashing of your message. tea-baggers ain't credible cuz people they voted for never delivered, not reagan, not bush senior, or bush junior. not to mention the same tired excuses "he betrayed our ideal, he's not true conservative", which btw, sounds a lot like the argument put forth by "moderate Muslims" every time an suicide bomber went off, can't convince anybody any more. BTW, if deficits hawks were really serious, they should first take a look into the mirror and implement some fundamental changes to their own "way of life" which is the root of the problem.
Don't listen to the government or those economists. They want you to spend the money, like the government is doing and go into heavy debt (deficiet) situation.
It's simple, just follow your heart. Why would you spend money when you are making less of it?
You should save every penny !!
ideological dribbles at best, if he's even half intellectually honest, he'd not purposefully choose to ignore that the federal deficit started to balloon under the watch of Reagan, the conservative deity on everything. he also willingly ignored the fact the political realty on the ground means that it'd be political suicide for obama or anybody else to really "cut" cuz the three biggest federal expenditure item: social security, medicare and military, are as much an sacred cow to the republicans or even the tea-baggers as it is to the democrats. remember the dude who screamed "hands off my medicare, you big fat evil government"? not to mention two of the biggest budget-busting events over the last ten years, the wars in iraq and afghanistan, were supported across board by the same people who are accusing obama of being soft on deficit. you're not serious because you don't have the gut to admit reality and say, let alone do, the obvious cuz doing so would prick the little bubble your constituency lives in, therefore, cost your your votes for next election, in another word, the same kind, IMHO, even uglier sort, of politicking "fiscal hawks" are accusing obama of. bush was voted into office ostensibly as an small government republican, the first thing he did, long before 911, was to ram a tax cut bill through congress that made surplus disappear almost overnight. you had your chance, you didn't deliver. time to move on or at least do some rehashing of your message. tea-baggers ain't credible cuz people they voted for never delivered, not reagan, not bush senior, or bush junior. not to mention the same tired excuses "he betrayed our ideal, he's not true conservative", which btw, sounds a lot like the argument put forth by "moderate Muslims" every time an suicide bomber went off, can't convince anybody any more. BTW, if deficits hawks were really serious, they should first take a look into the mirror and implement some fundamental changes to their own "way of life" which is the root of the problem.
Anybody who is truly honest about the what the tea party stands for will agree that SS, medicare, and defense ALL need to be reformed. Americans are living longer and using more medicare and SS. The age of eligibility for BOTH should be raised ASAP. When medicare was passed by LBJ, then average life expectancy then was ONLY 68.
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