Six ways to fix the U.S. economy
January 11th, 2013
12:56 PM ET

Six ways to fix the U.S. economy

Watch GPS special 'Memo to the President' on CNN this Sunday at 8 p.m. and 11 p.m. ET

By Kevin Hassett, Special to CNN

Editor's note: Kevin Hassett is director of economic policy studies at the American Enterprise Institute and a former a senior economist at the Board of Governors of the Federal Reserve System. The views expressed are his own.

As President Obama approaches this legislative season, he has a chance to learn from his successes and failures, and position himself to maximize the chance that sound policies are enacted.  To do that, he needs to take 6 steps.

Take things one at a time.  The tax deal that was just accomplished was part of the puzzle, but spending is up next. It might be tempting to try to deal spending cuts for tax increases, but that will never work. There are just too many moving parts to take everything on all at once.

Make spending concessions that appeal to your Keynesian instincts. You are concerned that looming spending cuts will cause significant harm to the economy this year. The fact is, a dollar ten years from now is worth about 61 cents today if the interest rate is 5 percent. Smart cuts will lower the spending trajectory, and reap huge benefits far down the road. Given the way Washington talks about spending, that creates a political opportunity. Trade spending cuts in the future for spending cuts today, and do so at a rate that is at least 2 for 1. That will reduce the harm to the economy from a rapid reduction in spending, and provide you with an opportunity to be a statesman and give the Republicans more cuts without sacrificing your beliefs.

Offer Republicans a chance at real tax reform. Republicans want lower tax rates, you want more revenue. Republican plans, like the Romney plan, generally take all of the base broadening revenue and put it back into rate reductions. If you want Republicans at the table, instruct your allies in Congress to offer the Republicans a deal. If they give you a certain amount of revenue, you will give them fundamental tax reform.

Pursue immigration reform aggressively. Getting more output requires more inputs. Tax reform could increase capital formation, but a large influx of high skilled labor would also magnify economic growth. A vast expansion of legal immigration could feed the next economic boom.

More from GPS: What immigration reform should look like

Frack away. The nation has an enormous opportunity to radically increase the production of natural gas, an energy source that is environmentally friendly. Instruct your regulators to develop a plan to sharply increase drilling activity, while protecting the environment from the side effects of drilling.  There is a real risk that red tape will slow developments in this sector, and fast action could create many more North Dakotas.

Let others get the credit. The fact is, any legislation is going to require Republican support.  Ronald Reagan had a plaque on his desk that read, “There is no limit to what a man can do or where he can go if he does not mind who gets the credit.” Let your allies in Congress know your objectives, then see if they can get close to achieving them in negotiations. Let your opponents know that you support your allies in Congress, then wait to speak to the public until there is something on the table that has a chance of becoming law. Then, when there is a success, credit all the parties graciously for their joint accomplishment. That sets the stage for future successes far better than the touchdown dance you engaged in after the tax agreement.

Most Americans probably have little confidence that the president and Congress will be able to work together this year to address the challenges that we face as a nation. If the President Obama reverts to old habits, they may be right. But if he can take a few of these steps, then we have a significant chance of starting 2014 in a better place. The economic upside is enormous.

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