In order to get the US out of the multigenerational hole we have dug for ourselves, we have two separate but related tasks ahead of us in the short term: reduce or eliminate our future liabilities, and grow the economy. The first is relatively straightforward; it’s only politically complicated. As I wrote in my previous post, we already know what those liabilities are, and what is needed to either greatly reduce or eliminate them. They won’t disappear overnight, but the extended liabilities almost certainly can be, and most certainly need to be in order to restore confidence in the American economic system. All we lack at the moment is the will in Washington to do so, and we probably won’t see any unless we turn out the incumbent President and his allies in 2012.
The second will be a little more complicated, and it suffers from a similar problem, which is the Obama administration and its allies. If anyone doubts that, today’s Wall Street Journal interview with Eric Cantor makes it very clear indeed. Cantor describes a White House that sees American productivity as something to loot rather than something to promote:
The “philosophical starting point” of today’s Democrats, as Mr. Cantor sees it, is that they “believe in a welfare state before they believe in capitalism. They promote economic programs of redistribution to close the gap of the disparity between the classes. That’s what they’re about: redistributive politics.” The Virginian’s contempt is obvious in his Tidewater drawl. “The assumption . . . is that there is some kind of perpetual engine of economic prosperity in America that is going to just continue. And therefore they are able to take from those who create and give to those who don’t. We just have a fundamentally different view.” …
Mr. Cantor quit the talks in late June amid Democratic tax demands, which he considered non-negotiable. Their position, he says, was that “we can’t do this unless you Republicans are going to relent on revenues.” His truculence did not endear him to Washington—though of course no one likened Mr. Obama to a terrorist for similarly refusing to give on any part of his new health-care entitlement, which was not even in the vicinity of “the table.”
Somewhat surprisingly, Mr. Cantor was in fact prepared to bargain on about $20 billion in higher taxes on “the shiny balls of the millionaires, billionaires, jet owners and oil companies” that Mr. Obama so often mentioned in public. “If they wanted to be able to claim the win on that,” Mr. Cantor says, he wanted net revenue neutrality in return, by lowering the corporate income tax rate or perhaps enacting an even larger tax reform. In effect, he was calling Mr. Obama’s bluff on “cheap politics.”
In private, however, the debate always returned to the status of the top marginal rate for individuals earning over $200,000 and $250,000 for couples—aka the Bush tax cuts for people who do not own private aircraft. Mr. Cantor argued that some large portion of the income that flows through the top bracket comes from “pass-through entities”—that is, businesses—and “to me, that strikes at the core of what I believe should be the policy, and that is to provide incentives for entrepreneurs to grow.”
By contrast, he says, “Never was there ever an underlying economic argument” from Democrats. “It was all about social justice. Honestly, one of them said to me, ‘Some people just make too much money.'”
As with yesterday’s exchange between Ezra Klein and Rick Santelli, the Left’s “singular focus” is clearly not on job creation or economic growth. They’re too busy pursuing their own notions of “economic justice” to promote growth, and the underpinning of “economic justice” is punishing the people who provide growth in the first place. That’s what Klein meant yesterday about “fairness” and what this administration’s policies are designed to do.
And in that sense, they’ve been wildly successful, as the GDP series over the last two years proves.
Whether this administration or the next starts addressing economic growth, we need to reverse the efforts of Barack Obama and eliminate the arbitrary regulatory adventurism of his administration as a starting point. We need to get government out of the way of investors and businesses. And there is one area in particular where that should start: energy exploration and extraction.
No other area of regulatory reform will have the immediate impact as we will find in this sector. We have vast expanses of oil, coal, and natural gas in the US, far more than we thought even a few years ago. Opening up land and shores to exploration and extraction will create hundreds of thousands of jobs — high-paying jobs at that — directly within the industry, and even more secondary and tertiary jobs as the local and regional economies expand. North Dakota gives us a great example of this dynamic, where unemployment is low, budgets are balanced, and construction is struggling to keep up with demand. The expansion in the energy industry would take hundreds of thousands (perhaps millions) of Americans off of the net-recipient tax rolls and put them on the net-contributor tax rolls within months.
We also need to expand domestic refining capacity, which will add more jobs, but will also have another positive impact: it will make energy prices drop and provide more protection from foreign supply shocks. Both of these developments will encourage investment in other areas of the economy by making risk lower and more predictable, as well as guaranteeing a sufficient supply of energy for expansion. That will create even more growth, putting more people to work, and lessening the burden on safety-net programs. It will also have the salutary effect of creating a lot more qualified potential homebuyers, which will help end the housing depression in the US. Foreclosures will return to normal levels and banks will finally be able to rid themselves of stressed assets.
Finally, increased domestic production of oil and a shift to natural gas for transportation needs will eventually solve one of the most avoidable fiscal problems the US has — its annual wealth transfer to foreign oil-producing governments. We send hundreds of billions of dollars overseas every year to buy energy resources we could produce for ourselves. That transfer weakens the US in fiscal and security terms while bolstering some governments that are essentially hostile to the US. Even if it doesn’t happen directly — we buy more of our foreign oil from Canada and Mexico than any other resources, two friends and neighbors — our demand in foreign markets inflates oil prices and benefits countries that support radicalism, such as Saudi Arabia, Venezuela, Iran, and others. Keeping that money in the US would make us stronger, more secure, and bolster our wealth and prosperity rather than send it overseas.
We need that kind of growth to get the revenue side of the debt equation to contribute to a long-term solution. It won’t solve all of our chronic problems, but it starts off by solving some of our most pressing acute problems.