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The Compass Points Toward Growth Policy

But will the Keynesian in the White House follow it?

by
Douglas Holtz-Eakin

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December 6, 2010 - 10:10 am
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Last week saw the simultaneous ignition of three flammable DC-based policy conversations: (1) what to do with the so-called Bush tax cuts; aka the Democrats’ drive to commit class warfare regardless of the cost; (2) how to react to the president’s pesky debt commission, and (3) how to achieve “bi-partisan governance” and avoid the dreaded “gridlock” condition.  Into this combustible mix, the Labor Department lobbed a lit match: a November jobs report full of disappointment and bad news for long-suffering American workers.

The congressional reaction was predictable.  Panicked Democrats cried: “Quick, quick, tax the rich and then spend, spend, spend.”  Deficit be damned.  Republicans, with the bemused looks of those who have said the same thing for the 1000th time, asked: “Which economic doctrine, exactly, suggests that tax increases solves the jobs problem?”  The administration took at look at 50,000 new private sector jobs and simply declared victory, with CEA Chairman Austan Goolsbee blithely championing 11 straight months of private sector job growth.  By their standards, any sign of life in the private sector is an upset, but seriously?

Meanwhile, 11 members of the Bowles-Simpson commission supported a surprisingly sensible — not to be confused with perfect — plan to take on the debt.  While it would have taken 14 votes to officially ratify the report, I am in the camp who finds 11 to be a more-than-half-full glass.  The report made four important points:

  • The problem is large and not amenable to solution by wishful thinking; a focus on “waste, fraud and abuse,” cutting foreign aid, or other budgetary gnats; or waving Harry Potter’s wand,
  • The problem is spending, and everything in the federal budget has to be on the fiscal operating table,
  • The health spending problem is enormous, and ObamaCare is a part of the problem, and
  • The tax code is broken, so if you want more revenue, tax reform is the only route forward.

Disarray ensued.  Progressives simply walked away from anything that did not endorse a full-throttle acceleration toward a eurozone-style meltdown.  No surprise.  Responsible Democrats embraced the report, as did Republicans who saw it as an imperfect step toward finally dealing with out-of-control spending.  The politically aggressive conservatives held out for a consumption-oriented tax reform and greater attention to entitlement reform. And the Obama administration — who set up the commission as political cover for their feckless budgets — cowered in the face of a substantive report.

Lastly, the president held a “Slurpee Summit” on Tuesday, which was forgotten by Friday.  (Well, at least it lasted longer than his G-20 successes.)  Has effective bipartisan governance died in the cradle?

In short, by Friday, Washington was burning.

Which raises the question: if you are caught in a figurative forest fire, which way do you escape?  Answer: take out the compass and point toward growth.

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