I was quoted in an article by Greg Bresiger in the Sunday New York Post commenting on Discover’s Survey of consumer spending plans, which revealed that 64 percent of consumers rated the economy as poor. Only a snippet of my response to the questions posed were quoted in the article.
The two questions and my full response follow:
Some 70 percent of respondents in the Discover Spending survey rate the economy as poor, a five percent jump from the previous month. Are they right to rate the economy as poor and why? What policies would you recommend?
The respondents to the Discover Spending survey were correct in rating the U.S. economy as poor. Job growth has ground to a halt and business investment has been stifled by uncertainty and distrust concerning both fiscal and monetary policy. The unknown, and probably huge, costs, of Obamacare still hangs over the head of business. Trillion dollar Federal budget deficits are likely for the foreseeable future. Even if an agreement is hammered out between the ruling parties to cut future deficits, these cuts will be a drop in the bucket and will be spread out over a decade with little effect–if they are even implemented. Despite trillions lavished on stimulus programs and super-low mortgage rates, the housing market is dead in the water.
On the monetary policy front, markets are uncertain whether there will be another burst of monetary expansion, since Chairman Bernanke seemed to imply that QE3 would be a topic of discussion at the next FOMC meeting. Given these factors I think we are facing the frightening prospect of a repeat of the 1970s in which high unemployment and chronic economic stagnation and recession are combined with high, possibly double-digit, rates of consumer price inflation.
To avoid this grisly scenario, I recommend making deep and meaningful cuts across the board in the Federal budget and reducing it by 50 percent in one fell swoop beginning next year. Since the U.S. government is currently spending 43 percent more than it is taking in in tax revenues, this would solve our deficit woes and leave room for slashing the personal income tax and giving relief to the long-suffering and productive middle class. No department, agency or program should be spared the meat axe, even and especially the Pentagon.
We are in a dire situation. A nation rapidly approaching sovereign default can no longer afford to spend tens of billions a day fighting wars and “nation building” in far flung places. Nor can it afford military bases in 110 foreign nations and a military presence in 150. Although many economists on the left and right seem reluctant to admit it, interventionist foreign policy is an economic, as well as a political, problem and should be fair game in economic policy discussions. Military spending is as “discretionary” as any other type of government spending.
Regarding monetary policy, the Fed must be stopped from continuing to arbitrarily and unpredictably manipulate the money supply and interest rates. Its recent operations have tremendously exacerbated volatility in financial markets and have cut business expectations loose from their moorings in economic fundamentals. In the short run, Congress should step up and pass emergency legislation that prevents the Fed from engaging in any further open market operations or lowering the discount rate below a steep penalty level.