It is often said that when America sneezes, the world catches a cold – and boy did America sneeze in 2007-2008. Eight years later, the world economy continues to languish as America remains mired in its most tepid economic recovery in the post-World War II era. Governments around the globe have responded to this challenge by amassing unprecedented levels of debt to stimulate their economies. And quarter after quarter, year after year, global GDP numbers have proven these debt strategies to be failures. Enough. It’s time to cast the debt junkies overboard, and tack in the direction of creative growth ideas that will reignite America once again.
America's unique entrepreneurial spirit and ingenuity is what made it the economic growth engine of the world. Since the late 19th century, nearly all new industries originated and/or developed in America – steel, electricity, telephone, automobile, oil, aerospace, television, computers, software, mobile phones, internet, social networking, et al. The ripple-effects of these formations are what propelled the global economy. This same American engine today is barely idling, and, in turn, global economies are stalling. A perfect example is global trade growth – since 2009 it has averaged a mere 3% per year, whereas from 1983 - 2008 it averaged 6%. Even more problematic, key parts of the world are breaking down in territorial disputes to stoke patriotism and divert domestic attention away from economic woes – we saw this in the 1930s and 1970's and are seeing it again today with Russia invading Crimea, Ukraine, and now bombing in Syria; China bullying Japan, Vietnam, and the Philippines over a series of disputed South China Sea islands and militarizing them; North Korea’s cyber-attacks and nuclear saber-rattling; Iran’s accelerating nuclear-weapons program and growing confrontation with Saudi Arabia; and ISIS marching in the Middle East.
The U.S. domestic situation is troublesome as well – since the recession ended in June 2009, GDP has grown at the anemic average annual rate of 2.1% (versus 3.3% post war historical average); the national debt has skyrocketed to $18.9 trillion (from $5.8 trillion in 2001); median household income is 8% lower than it was when the financial crisis began in 2007; the 62.6% labor force participation rate is the lowest since 1977; U.S. exports are facing significant pricing headwinds due to the dollar’s strength; and the collapsed price of oil is jeopardizing the U.S. shale-oil boom and related employment gains. The accumulation of these trying economic conditions has fed public angst, creating a ripe atmosphere for Occupy Wall Street, Ferguson, Baltimore, and police scapegoating.
When the U.S. economy is weak, domestic and global brushfires ensue, resulting in strife and bloodshed. When the U.S. economy is robust, the ripple-effects of business activity and prosperity fan-out, silently and peacefully eliminating many would-be problems and bad actors. (The near-peaceful collapse of the Berlin Wall, Soviet Union, and East European communist dictatorships in the wake of America’s 1980s economic boom may be the best example.) As such, the historical evidence suggests that reigniting America’s economic engine may be the most consequential foreign (and domestic) policy action we can undertake. At first blush, doing so may look like a giveaway to the one percent, but it is not. The Average Joe and Sally must have a clear and viable stake in the game. Only when everyone is on board – the one percent and the ninety-nine percent – will a broad-based economic expansion take root.
The plan forward:
1. Establish a USA Bonus Plan for American workers, the employee-shareholders of America Inc. Most corporations incentivize their officers and employees if targets are achieved, so too should America. Thus, if U.S. economic growth doubles to 4% GDP in a full calendar year, every tax-filing American household will receive a U.S. Treasury bonus check amounting to 2% of their annual income (up to $175,000 of earned income; investment and passive income not included). If growth surpasses 5% GDP, the bonus rises to 3%. This plan uniquely incentivizes all Americans with the opportunity to share in America's successes. It is the secret ingredient that guarantees, for the first time ever, that no worker will be left behind.
2. Enact a 5-year testing window lowering the U.S. corporate tax rate from the industrial world's highest, 39.1%, to a globally competitive 20%. The central tenet of capitalism is competition and America as its standard-bearer must practice what it preaches or lose the competitive edge. First, this will reawaken America’s economic animal spirits with additional capital to hire workers, launch new business ventures, and ultimately spawn new industries. Second, it will eliminate tax-inversions (note Pfizer's $155 billion deal for Ireland's Allergan), and instead unleash a corporate exodus toward the United States, further boosting U.S. economic activity. Political rhetoric aside, money does not practice patriotism – it simply goes where treated best. Mistreat it, it goes elsewhere; respect and encourage it, it flows like a river. Tax consequences being equal, most major corporations would prefer their monies and/or business headquarters be in the United States where capital markets are the deepest and most liquid, political stability the greatest, and geographically they are oceans away from the world’s militarized trouble-makers.
3. Utilizing the same 5-year window, green-light U.S. corporations to repatriate the estimated $2 trillion in capital held overseas (avoiding unfair U.S. double-taxation) at a 0% tax rate so long as the monies are directly used for capital investment and expansion in the United States. Think about the economic impact of $2 trillion coming home to hire workers, enlarge and update factories, develop new businesses, and spawn new industries. (The purpose of the 5-year window is to enable immediate, emergency action to jump-start U.S. economic growth, without the endless legislative process to get it underway. Likewise, the window will produce years of empirical evidence proving or disproving the plan’s efficacy – empowering Congress to knowledgeably and fairly legislate a permanent corporate tax-system.)
The strategy of hope and debt has not worked – unless our goal is 2% growth and a string of raging geopolitical brushfires. For eight long years there has been a global tug-of-war between debt and austerity as the correct solution to our economic malaise. This has been an empty debate because it is neither – the only real solution is vibrant growth. With this in mind, the Reaganesque-Kennedyesque three point plan herein is specifically geared toward reigniting America’s economic engine. Successfully doing so will spur organic growth in America, spawning an economic wave that will produce greater global growth, prosperity, and ultimately a more peaceful geopolitical landscape. The history of the 20th century has proven these to be viable expectations, and with such optimistic prospects back in view, the gurus will soon be talking Dow 30,000. Everyone benefits.
On the other hand, a decision not to initiate a serious pro-growth agenda may be one of the most irresponsible government punts in our nation’s 238-year history. The alarm bells are ringing everywhere – aside from the geopolitical problems already mentioned, oil and commodity prices are collapsing, benign global inflation is giving way to serious deflation, China’s growth rate is rapidly slowing, Europe is flat-lining, and Japan is contracting. Most alarmingly, oil-dependent and nuclear-armed Russia was already trouble with oil at $120 / barrel; think about Putin’s worldview with a collapsed ruble and oil at $30. Does Vladimir Putin strike you as someone who will go away easily if cornered? Wake up, America, the darkest shadows of the 1930s are indeed facing us once again – worldwide economic malaise, deflation, currency wars, and growing geopolitical problems.
Vibrant economic growth is the only proven deterrent to such dangers, and only America can set it in motion.