We have just finished the past eight years with no one single year posting a growth in GDP over 3%. This is the only time in U.S. history that this feat has been achieved by a president. The funny thing, is that this occurred during a time of historically low interest rates. The Federal Reserve has been doing all it could to stimulate the economy with favorable monetary policy.
The other type of policy is fiscal policy. You will remember from your basis economics class, that this is a combination of tax, government spending, and regulation. These combined can provide either a stimulus to or a brake on economic growth. For the past half-decade, the actions or inactions of the federal government has served to stimulate the economy like an anchor impacts the speed of a boat.
Jamie Dimon, CEO of JP Morgan Chase Bank, echoed some of these concerns in mid-July when he said to his shareholders, “It is almost embarrassing being an American citizen … and listening to the stupid s— we have to deal with in this country, the inability to make headway on significant legislation is holding us back and it is hurting the average American. It isn’t a Republican issue; it is not a Democratic issue.”
Our government was created to be a servant of the people, not the ultimate ruler over everyone. Our founding fathers bowed their knees to God and not the government as the ultimate Source of law. Whenever that principal is lost, the moral compass that guides us is lost as well.
So, what are some practical things that can be done to correct fiscal policy? First on taxes, lower the corporate tax rate. We have the third highest corporate tax rate in the world behind the United Arab Emirates and Chad. A significant lowering of the rate would encourage more business to house more of their productive capabilities within the U.S. A lowering, and simplification, of the personal tax is needed as well.
Next, government spending should be looked at in terms of efficiency. Most government programs begin with a good idea to help people, but within a few years the goal of the program is to perpetuate and grow the program, not help the people. Any organization conspires against the mission of said organization unless it is checked constantly.
One example of this comes from England. Someone in the 1990s asked why the British government was using resources to paint smokestacks dark. This was a constant process that went on and on. Well, it originated in WW2 when the dark smokestacks made it harder for German bombers to find and destroy factories. This work was still being performed fifty years later!
A very sad example in our own country came on June 15, 2017. President Trump ordered the government to stop work on the Y2K bug. This eliminated dozens of requirements for different agencies, including one alone that consumed over 1,200 man hours annually. This is utterly ridiculous that an event that occurred over 17 years ago, and had no impact after that was still consuming government time and resources another 17 years later. It was not sad that Trump stopped the Y2K work, it was just sad that no one before him had done this.
The last area is to reduce regulations. CUNA has a campaign to eliminate red tape in favor of common sense regulation. Take banking for an example. Have you ever stopped to think of the number of regulations and agencies that impact banking? You have the CFPB, OCC, SEC, FDIC, NCUA, Federal Reserve, FCA, USDA, SBA, FHFA, FSOC, Treasury Department, Fair Labor, and state regulators, to name a few. These folks have created more FED regulations than there are letters in the alphabet for more rules than one can easily count all in the name of protecting the consumer and making banking safe. I do agree that a safe banking system is important. But, most of these have the tendency to drive up the cost of banking services to the customer and make it harder to work with credit unions and banks. In some cases, this is again the impact of the organization conspiring against the very mission of the organization.
These actions have created a large nexus of power and money in Washington DC. In 2012, five of the six wealthiest counties in terms of average wage were located around our capitol. I don’t this this was what was in the minds of the founders. All this occurs while it seems impossible to get major legislation completed that will actually help move fiscal policy forward.
Term limits may help as it is necessary to have fresh faces with different ideas in Congress. The current turnover rate in the legislature is less than the Soviets had in their Politburo. Also, I favor tying their salaries to a combination of performance in the U.S. economy and the federal budget. Maybe a performance based system will create the proper motivation we need to kick start economic fiscal policy.