George M. Humphrey, who served as Secretary of the Treasury in President Dwight D. Eisenhower’s administration, argued that reducing both taxes and spending would be the best formula to promote free enterprise and a healthy economy. In regard to the federal budget, Humphrey noted that “there are a lot of places in this budget that can be cut.” Although Humphrey was addressing the economic and budget situation of the 1950s, his advice remains fundamental for the restoration of the nation’s economy.
The national economy, although showing some signs of recovery, is still struggling to emerge from the “Great Recession.” Unemployment remains at 9.5 percent and businesses are not hiring or investing. The reason for this is the uncertainty that has been created by the policies of President Barack Obama and the Democrat controlled Congress. The uncertainty is a direct consequence of the current policies ranging from stimulus spending, health-care reform, financial regulation, and tax policy, among other policies that have either been enacted or are being considered. The Keynesian-style government spending and increased regulation have failed to solve the unemployment problem. The $862 billion stimulus, while creating some jobs, has failed to reverse unemployment nor has it stimulated the private sector.
Another significant reason for uncertainty is the debt crisis. The federal government, just as with many states, is confronted with a massive debt and deficits due to uncontrolled spending and rising entitlement costs. The national debt is at least $13 trillion and the federal budget is running a $1.5 trillion deficit for this year and deficits are projected into the future. At the heart of the spending crisis are the entitlement programs of Social Security, Medicare, and Medicaid, which are not only getting more expensive and approaching bankruptcy, but threatening to consume the entire federal budget unless reformed. In addition Congress has added to the entitlement crisis with the passage of health-care reform, which will be another fiscal albatross.
Tax policy is also a major concern for the economy. In January 2011 the tax cuts passed by Congress during the administration of President George W. Bush are set to expire, which will raise tax rates across-the-board. Currently only a few Democrats are supporting renewing all of the Bush tax cuts. If these cuts are allowed to expire it will result in further economic decline and continued high unemployment.
Humphrey had the correct solution and the solution is not to increase spending on additional stimulus measures or raise taxes, but rather reduce spending, reform entitlements, and institute across-the-board tax cuts to stimulate private sector growth, which leads to job creation. Following a limited government policy centered on the Constitution will avoid further national decline. Let us be guided by the Founders such as Alexander Hamilton and economic policymakers such as Andrew Mellon and George Humphrey, who understood a healthy economy is based on a balanced budget, low taxes, and a commitment to constitutional government.
The views expressed in this column are those of the author and not necessarily those of the Public Interest Institute They are brought to you in the interest of a better informed citizenry.
John Hendrickson is a research analyst at the Public Interest Institute in Mount Pleasant