The Morning After

Recently President Bush sent a message to the nation when he visited J.C. Penney's and bought a pair of gym socks. It was his way of boosting the economy. I suppose he was saying that if everyone would just go to J.C Penney's and buy more socks and other things, the economy would right itself. Well, it was good politics, but bad economics. The President's message said loud and clear that what's ailing our economy is that people aren't buying enough. The reality is the other way around. People haven't been buying too little, they've been buying too much--often on credit. Outstanding consumer credit in the United States topped $800 billion last year. That's nearly $7000 of debt for every employed worker in America. And what private persons are doing on a small scale, the federal government is doing on an enormous scale. The national debt now exceeds $3.3 trillion dollars a year, and climbing--at a rate of 400 billion this year alone. Interest on government debt takes up 15 percent of the federal budget. So the last thing America needs, in the private or the public sector, is to spend more on consumption. What we really need is to pay off our debts and save money. Saving makes money available for investments, where it creates new jobs and produces more goods and services. If government wants to help, the best thing it can offer is a tax cut. But not just any tax cut. We don't need tax cuts that encourage consumption, like the one-time tax break for middle-income families that's being noised around on Capitol Hill. Cuts like that just encourage more spending and debt, and discourage the build-up of capital so crucial for production. No, what we need are tax cuts that stimulate production. That means things like capital gains tax cuts, and cuts in personal and corporate income tax rates. You see, real wealth is created when we get out of debt and increase capital investment--so that more buildings can be built, more machines can be manufactured, and more people can be put to work. And that's a process that can be stimulated only by tax cuts on production and investment. The principle here is simple: You get what you pay for. Pay people for consuming, and they'll consume more. Pay people for saving and producing, and they'll produce more. But beware. Even the right kind of tax cuts won't work if government takes back with its left hand what it surrenders with its right. If Washington continues its own spending binge, that will mean the money people save on taxes will be taken back in government borrowing. Tax cuts won't work unless they're accompanied by steep cuts in government spending. In the 1980s, President Reagan announced the start of a new day--it was "Morning in America." Well, if that was the case, then the 1990s are The Morning After. We now face the painful task of pulling ourselves out of the spending binge of the last decade. It's going to take some belt-tightening--which is not very politically palatable, especially in an election year. But it's got to be done. It's time to let politicians know we expect them to have the guts to tell it like it is--and bring us back to economic reality.

01/23/92