Simple, realistic solution to fixing the U.S. economy

James Case

is the author of Why Can't Obama

Fix the Economy?

Few would deny that the U.S. economy is badly damaged or that the party with the more plausible plan for fixing it is likely to win the coming election. Yet neither has proposed a plan that realists can believe in. While Republicans advocate yet more tax cuts and deregulation, Democrats propose further stimulus and deficit spending. Both are futile.

Tax cuts will fail because they reduce government revenue, thereby necessitating additional layoffs at the state and local levels among police, firefighters, teachers, and others. Outside the beltway, budgets have to balance, and deficit spending is not an option. In any case, firing people is a poor way to create jobs. The victims swell the ranks of the unemployed, even as their insolvency erodes demand for their services.

History suggests that deregulation isn't the answer either. As it affected the airlines in the late 1970s, deregulation served mainly to create shareholder value by decreasing the compensation of pilots, flight attendants, and airline mechanics. As it affected the trucking industry a few years later, it led to mass terminations coupled with (vastly) increased workloads for the few drivers fortunate enough to keep their jobs.

Stimulus and deficit spending are even less promising. Though widely believed to have halted the economic free fall of late 2008 and early 2009, the combination has yet to generate a recovery worthy of the name. Economist Nouriel Roubini, together with colleagues Daniel Alpert and Robert Hockett, has recently released a proposal for further economic stimulus leading, it is hoped - after five to seven additional years of massive deficit spending - to genuine recovery. But a substantial portion of their report is devoted to policies the Chinese government must be persuaded to adopt (including universal health care, education, retirement benefits, and substantial disposable income), lest the benefits of American deficit spending accrue primarily to that nation. How realistic is that?