Recipe for an Economic Recovery: Complete Makeover


Published July 31, 2013

| FOXBusiness

This is a chart that I use whenever I discuss the country's GDP. The best way to explain gross domestic product is an analogy that I learned years ago:

Think of the U.S. economy as a spigot turning water pressure higher and lower. Simply put, the government wants the economy as measured by GDP to grow at 3-4% annually. Coming out of deep downturns, we hope to see growth at around 5%.

There are limited tools that the government has to impact the economy. It can use monetary policy (i.e., money printing) or fiscal policy (tax policy) in an effort to adjust the economy's growth rate. If the economy is growing too fast and we fear inflationary pressures, we can implement higher interest rates and increase taxes to slow the economy down. Or, if we are growing too slow and not fast enough to generate enough tax income to support our ongoing deficit and debt, we can lower the fed funds rate and discount rates and reduce tax rates to stimulate growth.

We have been in an economic stagflation for three years -- slow growth, high unemployment and rising prices. In order to get our economy growing at a 4-5% GDP rate, we need a total makeover of our economic policy. We have a huge debt burden and the rate we must pay on the interest alone is growing so high that  to service that debt has become difficult. 

Simultaneously, our deficit is enormous and borrowing money from other countries to address it is not a long-term plan, nor is it very practical.

We need to turn the economic spigot so we have a pro-growth posture so we can get this economy moving in a quick, robust  positive direction. If we can then  hopefully we can manage our  ongoing financial obligations through additional revenue from a growing economy. 

Averaging 1.65% GDP growth over the last four quarters is pitiful. The old proverb goes: "when riding a dead horse, dismount."

It's time to dismount from these inept economic policies and turn the pro growth spigot on.