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.

soundoff (35 Responses)
  1. vonrock

    Gee Mom thanks for the advice.

    January 11, 2013 at 1:17 pm | Reply
  2. GOPisGreedOverPeople

    Let me guess.........MORE TAX CUTS FOR THE RICH!!!!!!!

    January 11, 2013 at 4:26 pm | Reply
  3. rightospeak

    Unfortunately people like the author ill advised our leadership-result ,bankrupcy. There willl be no improvement if you follow Keynesian economics -only a disaster like we have.The article is naive ,at best.
    To improve things one need to read the book by Lou Dobbs "Exporting America" and will understand what happened.Then a reverse of job off shoring needs to happen. Endless wars need to stop, the Federal Reserve need to be put out of usury business, borders closed. The Al Capones of drug business need to be put out of business like after the Prohibition. With so many people out of jails unemployment will get worse, but will be better in the long run.

    January 11, 2013 at 6:30 pm | Reply
  4. BurstBubble

    Advise from a guy who works for the Board of the Federal Reserve system? I agree with much of what RIGHTOSPEAK said earlier. Manufacturing needs to come back to this country and tarriffs need to go up. Immigrants need to obey the laws of this country and get out. Their children need to have their US citizenship revoked, period. They got it by their parents doing and illegal thing why should they get rewarded. Obey the laws.gtfo.

    January 11, 2013 at 8:48 pm | Reply
  5. evilroyslade

    TARP bailout, Deregulation, Bush Tax cuts, Tax loop holes, military EXPENSE, off budget spending, prison system, court expense, lobbyist, healthcare cost, unfunded Bush prescription plan, TSA expense, Federal retirement expense and Subsidizing industries add up to lots of unpaid stuff. Start with Tax reform, downsize the military and get our moneys worth when we have to spend tax dollar. IMHO

    January 12, 2013 at 4:39 pm | Reply
  6. j. von hettlingen

    Indeed, Obama should take Ronald Reagan's philosophy: “There is no limit to what a man can do or where he can go if he does not mind who gets the credit”, to heart. Also he could learn from Lyndon Johnson, who didn't hesitate to call anyone in the Congress, when he needed support to pass a programme.

    January 12, 2013 at 5:45 pm | Reply
    • paofpa

      You will get upset at looking at Ronald actions in deep detail. That requires understanding them.

      January 12, 2013 at 8:39 pm | Reply
  7. Caritas

    First step.....STOP ALL AID TO INDIA. America needs to take care of its own.

    January 12, 2013 at 6:15 pm | Reply
  8. empresstrudy

    Other than raising a few taxes it's not realistic that never to be re elected Obama will do anything.

    January 12, 2013 at 7:16 pm | Reply
  9. paofpa

    Frack – Oil vs. Frack – Natural Gas: They are two different commodities. Gas has bottomed out on price due to over-production. Let Fracking of Natural Gas teach us how to regulate the Fracking of oil ten years from now.

    January 12, 2013 at 8:33 pm | Reply
  10. CharlieSeattle

    Obama and Congress can repeal China's MFN (Most Favored Nation) Trade status and bring 8 million lost jobs back to the USA anytime they wish.

    That was Clinton's gift to America in 1999 in exchange for laundered Chinese campaign contributions.

    Republican supporters and big business would stop that.

    Major Corporations have found that China's State Sponsorship of Capitalism is the idea market for them to be in.

    Unlike the US....
    No environmental laws.
    No child labor laws.
    No Patent enforcement.
    Blatant counterfeiting of US products.
    Weak state controlled unions.
    Low wages.
    Long hours.
    No benefits.

    Lol, Even US Corporate expenses related to out sourcing American jobs are tax deductable. Its true. Google the thread and read it for yourself.

    It is really to Ironic that the very same Americans displaced by out sourcing and out of work pay the tab for those very tax deductions.


    Bad things are supposed to happen to stupid people that re-elect the same people over and over,

    January 13, 2013 at 9:12 am | Reply
  11. CharlieSeattle

    This sick economy is one of the results of 300,000 Americans buying Chinese made crap instead of Made In America goods.

    Collectively you all destroyed the businesses your forefathers created. And you spit on the Unions that fought the last 100 years to give you YOUR 40 hour weeks, Vacation, Health Care, Pensions.

    You make me sick.

    Are you all so stupid and think you can do that and keep your jobs, your homes, a strong tax base and schools? In Kinder garden you all played musical chairs. 300,000 million Americans have been playing economic musical chairs for the last 40 years. lol, enjoy the game suckers you are all losing. Bad things are supposed to happen to stupid people.

    Two acts of TREASON by Congress against the American worker, NAFTA and Most Favored Nation trade status for China, are mainly to blame for the financial problems across the USA.

    As Union membership has dropped in this country so has the quality of life, the tax base school funding, highway repair, national defense, etc. etc. Strong unions are directly linked to good paying jobs in this country that once made the American middle class the greatest consumer force in the world.

    January 13, 2013 at 9:15 am | Reply
  12. Rick McDaniel

    Dictators don't listen to suggestions. You should know that.

    January 13, 2013 at 12:18 pm | Reply
  13. jamesdickason

    #1 is Resign–

    January 13, 2013 at 7:53 pm | Reply
  14. katzwalkmodels

    Build the Bering strait bridge and that would create millions of jobs all over the world this bridge already been design !

    January 14, 2013 at 3:28 am | Reply
    • desert voice

      I sure agree with you on this one. I have been an advocate for this bridge for a long time. I didn't see Russia from my window in Wasilla, but had often driven on the Barrow highway thinking of this train! Imagine sending a train convoy from London to Rio Gallegos, in Argentina! That train would cross Europe, Russia, China, Alaska, Canada, the United States, Mexico, Brasil, and Argentina. All the countries that would benefit from the trade ought right now be creating Consortium for building this train!

      January 17, 2013 at 8:10 am | Reply
  15. nobama

    Keynesian economics got us into this mess.

    January 14, 2013 at 4:09 am | Reply
  16. Bob T

    Stop the spending! Ditto, Ditto, Ditto, Ditto, Ditto.................Dummy!

    January 15, 2013 at 11:49 am | Reply
  17. stephene

    Do you think american people will like the job that China's current salary if manufacturing will be brought back here in US? I think the problem is the people not the company or businesses. If you need a high paying job then go to school and earn a degree. Be competent and work hard for yourself.

    January 15, 2013 at 2:29 pm | Reply
  18. CaptainOb

    You must be out of your fracking mind.

    January 16, 2013 at 8:27 am | Reply
  19. AC

    Promise spending cut for the future.... when you will no longer be the president!
    Promise spending cut for the future ...when the $ will be worth less... and if that happen you can ensure that by inflating our way out with more Keynsian economics Only the poor will be the worst hit because of rising price

    January 16, 2013 at 3:03 pm | Reply
  20. desert voice

    Reading these posts is like being blind and walking in darkness. I can't solve the Nation's problems at this moment. All I will say that we need light, not more darkness!

    January 17, 2013 at 8:04 am | Reply
  21. bribarian

    Obongo should be impeached.

    January 18, 2013 at 9:02 pm | Reply
    • krehator

      Bush set the bar too high for that.

      January 20, 2013 at 4:27 pm | Reply
  22. matt

    The big answer to fix the economy - get Obama out of the oval office along with his cohorts of liberal idiots!

    January 18, 2013 at 10:31 pm | Reply
  23. krehator

    Mr. Hassett,

    If you are such an expert, why are you not running for President?

    January 20, 2013 at 4:26 pm | Reply
  24. rhillma1

    I find it hilarious that demobilization is not at the top of the list. Prior to WW2, USA traditionally demobilized its armed forces after war had reached conclusion. WW2 is over, Korea is over, Vietnam is over, the Cold War is over, Iraq and Afghanistan is nearing completion. It is time to follow tradition and demobilize. Every dollar spent on defense is a dollar that could have been put into infrastructure which boosts our economy both long term and short.

    January 21, 2013 at 1:04 pm | Reply
  25. Carml

    Golly! Another 5 cent expert who probably never ran for anything except a bus......if these were valid suggestions, then Romney would not have been so roundly rejected!

    January 22, 2013 at 3:57 pm | Reply
  26. bettyhill

    Not really creative in a long-term perspective.
    There is no question that the USA is a great nation. It led the 20th century to new heights in living standards, prosperity and equality. But sadly from the last quarter of that century it lost its way in respect of innovation and driving the USA even to greater heights. What seems to have happened is that complacency set in with US politicians who took their eye off the innovation/wealth mechanism. Bush junior more so than any other US president as he took funding away from 'pure' scientific research, closing thousands of scientific laboratories and government research establishments in the process. But where it has to be said, that this was on-going from the early 1970s. Bush compounded this effect and where any future innovation potential was sacrificed on the political altar of 'we don't need to fund pure research as it does not give us a quick return'. Long-term strategies had no place in politics and that is the same today. That is unfortunate as only long-term strategies will now win back any economic advantage.

    Unfortunately again this lack of vision and understanding of the unique power of Innovation to create dynamic economies by US politicians drove a nail year-on-year into the coffin of US wealth creation and the living standards of the US people as others 1000s of miles away took up the challenges of invention and creativity. Indeed these SE Asian nations are now ripe to take the high ground in world economics with low debt, high investment power and now knowing that innovation is the golden key to capturing economic supremacy.

    No matter which way you look at things US (and western) politicians do not understand what innovation really is and how it transforms nations. They should do but where their senses are completely lacking when one considers as an American miracle that of Apple and how this great company came from near destruction to become the largest company in the world (only recently losing that crown to Exxon again).

    Therefore not until US and western politicians base their economic strategies on innovation will they regain the positions that they had for their nations prior to the 1970s. Indeed US politicians took no notice of the development of the ORE-STEM complex that Seaborg and others supported as our only way to continual increase our living standards and wealth. So the US dream was destined for decline when their politicians did not take seriously what some of their greatest scientists and engineers were telling them.

    Now the 'West' using its present economic thinking that has not changed in over 40 years has only one way to go and that is downward. Let us hope therefore that US politicians eventually come to their senses and build the world's most creative complex, the ORE-STEM, for their people and all humanity. For that once built will provide the continual catalysts for total sustainability in this century and beyond.

    Will they, I very much doubt it and where in another quarter of a century with the same political thinking the US and other western nations will have living standards that are up to 50% of what they are now presently.

    A sad story really and only if they had taken notice of some of the greatest minds of the 20th century (Seaborg, Argyris, Karle, Menelaus etc). But there again they are just politicians not people with great vision and insight. A pity !

    Dr. David Hill
    World Innovation Foundation

    January 29, 2013 at 2:30 pm | Reply

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