There is a great op-ed piece in the Wall Street Journal by Michael J. Boskin, professorof economics at Stanford University: click here to read.
Basically the article states that studies show that successful deficit reduction requires five steps by ourlawmakers.1. $5 of spending cuts for each $1 of taxes raised. There are studies to prove this.2. Create enforceable procedures. The example given was creating a cap on spending withsequestering of funds when the cap was exceeded (we need the consequence).3. Fight gimmicks. Currently the baseline for determining whether there is a cut or increase intaxation starts from the assumption that the Bush Era tax cuts will cease January 1st, 2013 soany increase in taxes which is less than that is a tax cut (figures don’t lie, but liars figure!) Wehave something called automatic budgeting which for 2012 states that federal budgets areexpected to increase 7% so any increase spending less than 7% is a draconian cut (more lying).4. Quickly correct unintended consequences. At the end of the 1970s, with little research, thegovernment thought that with wages growing at a lower rate than inflation, adjusting SocialSecurity wages to the average wage increase would create a smaller benefit than matching it toinflation. Of course, the government timed the change (1977) just as inflation was peaking andafter 1984 inflation was more minimal and real wage growth was large More than thirty yearslater, we still have benefits for Social Security tied to wage growth rather than inflation. Wagegrowth is now trailing inflation and unfortunately, the government, responding to the past 30years, is considering tying Social Security benefits to inflation!5. Fundamental problems must be dealt with rather than passed along for future generations.Social Security, Medicare, Medicaid, education, health care and infrastructure collapse all mustbe dealt with. The Greeks have been playing footsy with this issue for decades and now the fixis so painful that there are riots in the street. The Japanese have not dealt with their structuralissues for at least 20 years and now they seem to have a new leader every six months or so.Italy has not dealt with their structural issues and the country’s GDP has not grown in betterthan 10 years!
Hopefully our political system is not so broken that we need to feel the pain that these other countriesare feeling to solve our issues. We have a window of opportunity and now is the time to take advantageof it. The unfortunate alternative will be to look back on the 20th century as the best century of ourcountry and regret that we wasted the opportunity to keep that greatness going.
