Obamanomics or Reaganomics?

My newest op-ed was just published by WND.com.  In it, I discuss the ways in which government needs to “back out of the system” in order to stimulate real growth-much as Reagan did during his years of Presidency.  The op-ed is based on my latest Jesse Helms Fellows white paper  “Research on Reaganomics: Past Contributions and the Future of Economic Growth Policy.”

You can read the Obamanomics or Reaganomics op-ed at World Net Daily’s site or you can read it in its entirety below.

OBAMANOMICS OR REAGANOMICS?

Exclusive: Peter Frank advocates reversal
of ‘government is the solution’ mentality

Published: 12/16/2011 at 1:49 PM

http://www.wnd.com/2011/12/378229/print/

Economic growth is of primary concern for policymakers and the Obama administration as the president continues to tout policy designed at stimulating job creation. The mantra continues that in order to get the economy growing again, and move people into the labor force, government needs to spend more. A jobs bill, a stimulus package, a bridges bill, etc. – all that is needed is more government spending. Congress has all but forgotten, or so it seems, about the growing national debt with a $1.3 trillion budget gap this year alone. So the spending proposals continue. To what end? And has this solution proved effective in the last series of major economic challenges of the late 1970s and ’80s?

The Obama administration recently approved a half-billion-dollar federal loan guarantee to an electric-car company that has decided to manufacture its first line of automobiles in Finland. Is this the path to growth and continued prosperity for Americans? The problem here is not a question of intentions. Surely all legislators and the president desire to put Americans back to work. The problem resides in the basic limitations of government. There is no agency, politician, or bureaucrat that has enough information to efficiently direct resources in order to ensure a particular outcome. Decision-making by market participants informed by the specific knowledge of their complex circumstances is the only way forward. Washington lawmakers are unable to predict U.S. tax dollars fleeing to Finland and employing Finish autoworkers.

Instead of pushing spending bills and stimulus packages, instead of inciting protesters to blame American firms for all the evils in the world, the president should shift his focus to policy of which government can actually predict the beneficial outcome. Tax reform is the solution. Ronald Reagan demonstrated in the 1980s that when government gets off the backs of the people economic change will follow. Reagan pursued radical tax reform for two primary reasons: to lessen the burden of government while promoting the founding ideals of economic and political freedom, and to promote incentives that generate economic growth.

Optimal tax policy is not that which maximizes revenue to the federal government. Government has a limited function to perform, primarily a protective one, yet it is clear that for too many in Washington that the reach of government should have no bounds. Thus, when policymakers view government as the first solution to all economic problems, spending decisions are made irrespective of revenue – which leads to the massive deficits.

In addition to promoting liberty, the unprecedented tax reform ushered in by Reagan set a course for economic growth that was unparalleled in U.S. history. Cutting marginal tax rates for all wage earners and for the highest earners by 42 percent in six years, Reagan changed the incentive to work and earn and thus unleashed frenetic economic activity. This type of leadership and this scale of reform is what America needs today.

The solutions offered by the Obama administration to the economic stagnation that persists in the U.S. economy all reside in a failed ideology. Unlike during the 1980s, the belief in Washington today is that government is the solution and the real problem is tax policy that fails to generate enough revenue for the government to spend. Pulling dollars out of the market economy for government to spend on stimulating the market economy is backwards, yet this is exactly what the president is pushing for.

The time has come for politicians in Washington to pursue radical tax reform in the model of Reagan 30 years ago. Incremental changes in marginal tax rates will not provide the stimulus needed to jump start a sluggish economy, and raising rates on any level of income will only increase (albeit temporarily) the ability for government to spend more using the failed approach of “more spending” as the only solution. A complete change of the tax code will usher in a new decade of prosperity as occurred in the 1980s, but this will only happen if new leadership in Washington governs with the conviction that less government will lead to more “public” prosperity.

State of Spending Address Proves Budget is Top Concern

With the highly anticipated State of the Union Address now behind us, its clear to see that spending was a top priority for Obama during the discussion.  Whether or not this rhetoric will continue out through the election season remains to be seen.  In my latest op-ed for the Richmond County Journal I discuss the points raised in the State of the Union and offer my own analysis.  You can read the original op-ed on the newspaper’s site or you can read the piece in its entirety below.

 

State of Spending Address proves Budget is top concern

RALEIGH — If President Obama’s State of the Union Address proved one thing, it’s that spending is out of control. Even more evident in his collectivist rhetoric was a clear misunderstanding of what it will take to fix our budgetary woes. The president called for a freeze on spending while advocating increased financial support of education, rail transportation, and research, among other special initiatives. He offered far more examples of how he would spend rather than how he would save.

So how does the administration intend to make sense of this spend-to-save policy? Simply re-interpreting costs and revenue changes their math, and it all starts with its views on taxation.

One of the most popular tools in the government arsenal to control human behavior is taxation. If the government wants less of something like cigarette smoking or gasoline consumption, it taxes it. A tax on cigarettes presumably leads to less smoking, and the government says that is good. But, when the government advocates a tax on income that will work like any other tax, and reduce the incentive to earn income, they say the “tax to deter” rule doesn’t apply.

Rather than viewing the December tax cut extensions as a benefit to American citizens, the government calls the extension of rates a “cost” to the federal government. This argument takes focus away from earners generating wealth in the private sector, because a “cost” to the federal government is really a gain to earners. Moreover, if the federal government wasn’t spending billions more than it “earned” in tax revenue each month, an extension of the current tax rates would never provoke discussion of the “cost” of existing tax policy.

The initial approach to the tax bill debate was the Obama administration’s masterful attempt to couch the issue as an extension of mistaken Bush-era policy. The debate became focused on revenue alone and how the government must fund its ballooning debt. And, the underlying assumption was that Bush-era economics led us astray from an optimal tax rate.

Is this really the case? Were the tax rates that existed under the Clinton administration perfect and we are now suffering after those golden years? Should the American people pick some optimal level of personal spending and then hope their income matches up?

All talk about optimal tax rates and the extension of Bush tax cuts focuses the discussion solely on government revenue. Where is the debate over government spending as it relates to taxation? Rep. Paul Ryan, R-Wisc., briefly touched on the issue in the Republican response to the State of the Union by acknowledging the government’s tendency to control and tax too much. Sadly, the president publicly came to the conclusion that the current tax rates were OK to keep because they were for the good of the country (and the good of his re-election). The reality is that the president believes that keeping taxes at the current rates will “cost” billions over the next few years. A tax rate has never cost the government a dime (apart from collection costs).

The recent tax bill marks the beginning of what is certain to be an ongoing debate as Congress moves through this session. Now that the current tax rates have been extended, House Speaker John Boehner and his colleagues should change the focus away from what rates will “cost” toward how federal spending can get in line with revenue.

Whether or not the current tax rates are extended, the federal government does not have an impending revenue problem; it has a spending problem.

Is this the year Congress finally will stop ignoring the truth about our ballooning budget crisis and come together to make hard decisions? In November 1973, Sen. Jesse Helms, backed by a small group of his conservative colleagues, offered a balanced budget amendment that was tabled by a 46-43 vote. Sadly, the same fiscally destructive tradition has been repeated each year as some version of a balanced budget amendment is offered with great fanfare, then rejected by the very people who have sworn to “faithfully discharge the duties of their office.”

Perhaps leaders and citizens alike will heed the advice of Ryan, chairman of the House Budget Committee. “Our debt is out of control,” he warned. “What was a fiscal challenge is now a fiscal crisis. We cannot deny it; instead we must, as Americans, confront it. … So hold all of us accountable.”

Government’s refusal to act will not change until Washington stops considering taxes as income. Voters, armed with the sage advice of economists, must voice their opinions. Change will come when informed voters demand it.