Abig issue is missing in the debate over the “fiscal cliff”: how to get the Obama economy growing again, fueling capital investment, jobs and higher incomes.
In all the fire and fury over whether we should raise or cut taxes, or how we can pound the deficits and a monster national debt into submission, the role of economic growth doesn’t get the attention it deserves.
President Obama rarely mentions the term. Probably because the gross domestic product, the broadest measurement of all goods and services that the economy produces, has been so weak under his administration that he is embarrassed to talk about it.
Democratic leaders in Congress have all but dropped economic growth from their vocabularies because they don’t understand what it means or what policies affect its growth or contraction. The nightly news shows, and the national news media in general, deliver reports on the battle over the looming “fiscal cliff” without uttering the term.
It’s the critical factor, however, in a prosperous, expansionary, wealth-creating economy. Wealth — it’s another term you don’t hear much from the president because the people in his party consider it a naughty, illiberal word that draws boos from his Democratic base.
In fact, wealth creation is at the center of a healthy economy because it provides the resources needed for venture capital investment in new industries and businesses, large and small, that open employment opportunities for a growing, vibrant nation.
The lack of economic growth is also a big contributing factor in the sky-high, trillion-dollar budget deficits under Mr. Obama’s reign that have plunged us into unfathomable debt. Weak growth has eroded the fiscal foundations of the largest economy in the world and weakened our credit rating for the first time in U.S. history.
When the economy’s growth rate has slowed to a crawl, as this one has, businesses go bankrupt or struggle to keep their heads above water. When payrolls are slashed, the unemployment rate climbs, and fewer Americans and businesses pay income and payroll taxes. Thus government revenues plunge, which drives up deficits.
Mr. Obama convinced millions of Americans in his election campaign that the deficits he ran up over the past four years were the result of greedy upper-income people who weren’t paying enough taxes. The truth is that the wealthiest 10 percent pay 70.5 percent of all income tax revenue.
In fact, a giant slice of the deficit is the result of millions of people who do not have jobs and thus have no income to be taxed.
Uncontrolled and wasteful government spending is the driving factor behind unprecedented budget deficits, but a recession-leaning economy that isn’t working comes in a strong second.
It is important to understand a few simple rules about what fosters stronger economic growth and the difference between healthy growth levels and a merely mediocre rate of growth in a precipitously declining economy.
Rule No. 1: You don’t raise taxes in a high-unemployment, slowing economy. There is no economic school of thought that says you can draw more capital out of a very sluggish economy through higher tax rates without weakening its ability to recover.
Mr. Obama’s denials to the contrary, we’re in the fourth year of a sluggish economy. Federal Reserve Chairman Ben S. Bernanke told the New York Economic Club last week that the economy’s growth rate has averaged a puny 2 percent since the recession ended in the middle of 2009.
“By contrast, the average growth rate of post-World War II recoveries at a similar stage is almost 4.5 percent,” said economics analyst Robert J. Samuelson. This means, he wrote, that “the economy is producing about $1.4 trillion less of everything from Big Macs to cars, than it would if we’d had an average recovery.”