At the G8 summit at Camp David this weekend, the leaders issued a statement calling for more growth (ie. more government spending) instead of austerity.
CAMP DAVID, Md. — Leaders of the world’s richest countries banded together on Saturday to press Germany to back more pro-growth policies to halt the deepening debt crisis in Europe, as President Obama for the first time gained widespread support for his argument that Europe, and the United States by extension, cannot afford Chancellor Angela Merkel’s one-size-fits-all approach emphasizing austerity.
Pointedly recognizing “that the right measures are not the same for each of us,” the leaders of the Group of 8 nations, at a meeting hosted by Mr. Obama at Camp David, committed to “take all necessary steps” to strengthen their economies. They said they wanted to keep Greece in the euro zone and vowed to work to promote growth in Europe, though behind the scenes distinct differences remained over what kinds of stimulus policies to pursue.
“Our imperative,” the leaders said in their statement, “is to promote growth and jobs.”
Except there really is no conflict between growth and austerity. Most of what is being called “austerity” in Europe is the result of a combination of some spending cuts and mostly tax increases. As a result, European economies are contracting as government continues to engorge itself on the shrinking economy. What Europe needs is first and foremost for countries like Greece, Spain, and Italy to be set free from the economic prison of the Euro. Then European countries need to cut taxes and shrink their unsustainable cradle to grave welfare states, to take more money away from the unproductive government and return it to the private sector. Finally, Europe needs to find a way to get its abysmally low birthrates up or open up to more immigration for more sustainable growth in the long term.
There are similar lessons for the United States. At the end of year, the Bush-Obama tax cuts are set to expire. President Obama is not inclined to renew them and instead he is out on the campaign trail calling for more stimulus (ie. government) spending on everything from more housing bailouts to more “green energy” scams. We are already seeing the results of higher taxation on growth in Europe, it’s not working. To add to this, we have the Federal Reserve operating its printing presses at full speed flooding the markets with more cheap money invented out of thin air. Clearly, this is not creating robust growth.
What we need to do in this country is to cut government spending first and foremost. Federal government is spending 24% of GDP and this needs to be reduced. Then we need steep tax cuts and tax reform with the base being broadened. We need a flat income tax of around 17% with few (or preferably no deductions) and corporate rates cut down to at least 20%. This will put more money into the private sector and used to grow the economy and increase jobs. Finally, we need to end the Federal Reserve’s policy of the cheap dollar. We need to start incrementally increasing interest rates to encourage savings and encourage more sustainable growth through investment. This will signal to people whose net worth and savings have been wiped out in the recession that it is worthwhile to begin saving again to rebuild their wealth. To prevent more Federal Reserve attempts to debase the dollar, we should encourage competition in currency and more local currencies.
The way to get people back to work around the world is through less government and more freedom, which is what the solution always has been.