Why Is The United States Zigging While The Rest Of The World Is Zagging, Economic Policy Wise?

I recently noticed that a lot of the world's major economies are making major and similar economic policy decisions:

- In a recent article on the Spanish News website, Debbie Parker wrote an article outlining the economic steps that Spain is undertaking to spur an economic recovery. According to their labor minister, Celestino Corbacho, Spain will make major cuts in government spending in order to quickly reduce the massive Spanish government debt. Spain has an unemployment rate of 20% but the government feels that cutting government spending is the quickest way to get their economic house in order.

- According to a September 15, 2010 Associated Press article, the French government just voted to delay the retirement age of French citizens to 62 years of age as one way to rein in government spending. The article also reported that Germany will shortly do the same thing, raising its retirement age from 65 to 67.

- The same article reported that many of the royal families across Europe are also seeing their budgets being cut because of government cut backs in spending.

- On August 16, 2010, the New York Times reported that Denmark, which had long been considered the best place in the world to lose your job, has cut the current four year period for unemployment benefits to two years to "help mend its finances after the financial crisis." The article reported that Danish market research had shown that the longer a person goes without any job, the harder it is to find work. The study also found that unemployed Danes are mostly likely to get a job shortly after receiving their first unemployment checks and again just before their unemployment benefits run out four years later.

- On August 8, 2010, the New York Times reported that the new government in Great Britain was making significant government spending cuts in an effort to get their economy up and running again. The initial plans calls for cutting up to $130 billion over five years.

- The USA Today reported on September 13, 2010, that the Cuban government would lay off up to 500,000 government workers and try to increase the private sector of the economy to absorb the laid off workers in order to get government spending under control.

Obviously, most of the world has recognized that outsized government spending and huge national debt is not conducive to growing their national economies and creating jobs. Laying off government workers, cutting down on government entitlements by raising retirement ages, and slashing unemployment benefits are their best economic tools to creating a vibrant economy.

Now consider what the American political class wants to do:

- Some politicians are calling for more government stimulus spending, and the increased national debt that goes with it, even though most stimulus spending to date has been ineffective, wasteful, and in many cases, spent on idiotic programs with no chance at all of creating work for Americans.

- Congress and Obama recently increased unemployment benefits despite the fact that many economists and smart people understand that long periods of unemployment benefits reduce the incentive to find work, any kind of work. The latest Danish studies prove this hypothesis.

- No one in the American political class has the courage and leadership skills to champion the raising of the United States retirement age, fearing that they would lose votes and endanger their job for life in Congress even though they all know that Social Security will help bankrupt the country in its current form and that raising the retirement age is just one of several strong steps that need to be taken to shore up the system.

- Rather than confront the problem head on and start cutting excessive government spending now, the political class and Obama are hiding behind a Presidential commission that is examining what and how to change to get government spending under control, a commission that will not even report its findings for several months, never mind actually making cuts.

If you review the U.S. government economic statistics from the mid-1940s. you will find that President Truman and the other politicians had the guts to reduce government spending by almost 68% from 1945 to 1948 which:

- allowed the U.S. economy to grow 21% over that period.

- successfully absorbed millions upon millions of returning servicemen into the private sector of the economy.

- kept unemployment below 5% despite the rush of new workers into the economy.

Thus, as the rest of the world zigs in its economic recovery plans, the Obama administration zags to the old, failed polices that have not worked so far despite what we know about our history. Who is right? We will not know but lets hope we find out quickly before the American political class zags us right back into a recession while the rest of the world grows their economies as a result of incenting the free market to create innovation and jobs, not via Cash For Clunkers-like failures, but through true economic growth.

If the President and others in the political class need any ideas on how to mimic the programs that others are following, they should consider the following straightforward first steps:

- Systematically reduce Federal government spending by 10% a year for five years.

- Fix both Social Security by raising the retirement age to 70 and stop paying out benefits to anyone with a net wealth over $3 million,

- Eliminate the traditional Federal employee pension plans for new Federal employees, making them consistent with most private sector workers who no longer receive a traditional pension.

- Bring back almost all foreign deployed U.S. troops as a precursor to greatly reducing our defense budget.

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Prohibit the Federal government from spending any taxpayer money on any program or project that did not significantly impact a significant amount of citizens from five different states, leaving those programs to be funded by the impacted states or allow them to wither and die.

- Immediately increase fraud enforcement activites for large government programs like Medicare which have been shown to waste upwards of $100 billion a year to fraud.

Bottom line is that Europe and Cuba get it, the right prescription for recovery is to get government out of the economy as much as possible and their politicians have shown the courage and fortitude to force this medicine down the collective mouths of their countrymen and women. Unfortunately, I fear that our politicians do not have that kind of courage and fortitude which, if true, does not bode well for our economic recovery.

by: Bruno Korschek

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