This month I am offering some advice to the new Congress (and also to you, the reader/constituent) that I believe is party-neutral, but imminently important to all Americans. This advice is what I believe policy makers should do immediately to ensure the short-term success of the current phase of economic recovery, and also to promote the general welfare and secure the blessings of liberty to ourselves and our posterity.
First, develop an abiding love of manufacturing. If we are to have any hope of solving the world’s problems, then we must manufacture the products to do it. And when I say “we” I mean Americans. The USA must return to a position of manufacturing preeminence.
Congress took some small steps before the election that are helpful such as empowering the Small Business Administration to offer more credit to small businesses. Other small steps should include: extending the tax credit for R&D activities; allowing investment in capital equipment to be written off as an expense in the first year rather than depreciated over a period of time; and passing the bill authorizing more spending on infrastructure projects (bridges, roads, airports, telecommunications, etc.)
These are small steps, and they will produce only a limited benefit for the economy. On the down side, they will also add to the federal budget deficit in the near-term. But we must revive the economy first, and then start the necessary task of eliminating the deficit and paying off our debt. For that reason, I advise extending the tax breaks for all Americans for another year. Soon enough, we will soon have to raise taxes and reduce spending if we are to get out from under our mountain of debt. But we should wait another year before we start this process.
By then, the cyclical weights that are currently restricting our economic growth will have lifted, and the recovery will have become self-sustaining. Credit will be flowing much more freely as banks look to increase lending in order to increase profits. Consumers will be de-leveraged and more confident, so they will have the ability and the desire to increase spending. The auto and construction sectors will start to contribute to domestic economic growth. The prevailing global economic growth combined with a relatively weak value for the U.S. dollar will boost export demand.
So the next 12 months will give us some breathing room, but we must not become complacent and think that our problems are solved. For too many years we have maintained a huge trade deficit with countries like China and Saudi Arabia, and then after we sent them enormous piles of dollars for their goods, our government turned around and borrowed the money back from them to finance our federal budget deficit. China is not only a major supplier of manufactured goods, but it is also our country’s banker. This has got to end, and we must start by saving more of our money, producing more than we consume, and our government must start collecting more revenues than it spends.
I believe that the message about the government collecting more than it spends is slowly sinking in, but the part about producing more than we consume is just as important. That means more manufacturing. Manufacturing creates jobs, generates wealth, boosts tax revenues, and pays off debt. And that’s something that all Americans can love—even Democrats and Republicans.