This essay is the second of a series of Heartland Policy Briefs by the author on entitlement reform.
Today’s stagnant economy is both unnecessary and, well, un-American. The U.S. economy sustained a real rate of annual economic growth of 3.3 percent from 1945 to 1973 and 1982 to 2007, making the United States the world’s greatest power. It was only during the stagflation of 1973–82, reflecting national leaders’ deeply misguided devotion to Keynesian economics, that real growth fell to only half the long-term trend.
A new Policy Brief by Heartland Institute Senior Fellow Peter Ferrara recounts this history and explains why the U.S. economy has failed to recover from the current economic crisis: Because President Barack Obama has doubled down on the failed economic policies of the 1970s.
We still have not regained the jobs lost during the recession, instead suffering the longest period with unemployment above 8 percent since the Great Depression. Millions more people have dropped out of the workforce, with the lowest labor participation rate in more than 30 years. Median family income is down by more than $4,000 since Obama took office, the equivalent of almost a month of lost income annually. Poverty and dependency have soared to the highest totals on record.
Ferrara offers hope: As history shows, the U.S. economy has a long-overdue boom already locked within it, straining to break out. Adopting updated policies of Reaganomics would unleash that boom.
Better yet, Ferrara offers an outline of what needs to be done: (1) real tax reform consisting of lower tax rates in return for closing loopholes; (2) spending cuts achieved through real entitlement reform; (3) recreating the Reagan deregulation agenda by reining in EPA and the Department of the Interior and repealing Obamacare, Dodd-Frank, and the Community Reinvestment Act; and (4) replacing open-ended Fed monetary policy with a strict price rule referencing the most policy-sensitive commodity prices.
These policies, Ferrara says, would return the U.S. economy to its long-term economic growth path, unleashing above-normal real economic growth of 4 to 6 percent for several years until the economy returned to its long-term growth path averaging real growth of 3.3 percent per year.
“The Foundation for Entitlement Reform: Get America Booming Again” is the second in an eight-part series Ferrara is writing on entitlement reform for The Heartland Institute.
The first installment in the series, “A Winning Plan for Entitlement Reform,” was released in December 2012 and available here.