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Cato Institute's Richard W. Rahn only sees 2 alternatives for reviving economy
Howard Richman, 8/4/2010

In his August 3 commentary about the latest GDP figures in the Washington Times (Evidence and Denial) Richard W. Rahn was quite accurate about the economic dreamworld that the Democrats are living in. He writes:

Last Friday, it was reported that economic growth was only 2.4 percent in the second quarter of this year - far below what the Obama administration had forecast. Yet the administration and its supporters continue to be in denial about the fact that their policies are not working. Psychologists refer to the refusal to change one's mind when confronted with contrary evidence as cognitive dissonance.

But he misses the fact that the Republican establishment is living in a dreamworld also If he were to look closely at the second quarter numbers, he would have discovered that the rising trade deficits caused GDP to fall. Obama’s failure to deal the trade deficits is sinking his presidency.

If he were to look closely at Bush's economic mistakes, he would discover that Bush used tax cuts, just like Reagan, but, as a result of Bush's tolerance of mercantilist-driven trade deficits, American manufacturing workers lost productive jobs in import-competing sectors without obtaining even more productive jobs in the export-producing sectors. The result was a decline in median income which caused the Republicans to lose the House, Senate, and presidency in 2006 and 2008.

Rahn claims that there are only two alternatives for restoring economic growth: (1) a supply-side strategy of cutting tax rates and (2) a Keynesian strategy of increasing government spending. He writes:

As almost everyone now knows, there are two competing theories about how to revive the American economy. One theory is to promote the supply-side of the economy by cutting tax rates or at least to maintain the Bush-era tax rates and reduce spending and government regulation; the other theory is to follow the Keynesians' advice by allowing some or all of the Bush-era tax rates to increase while also increasing government spending and government regulations (which proponents call "more stimulus")....

Both of the alternatives that he proposes increase our government's budget deficits, saddling our children with even more debt or possibly causing our government to default upon or try to inflate away its debt. He seems totally unaware that there is a fiscally conservative alternative. Bringing trade toward balance would have a stimulative effect upon the economy while the tariffs that are collected would help balance the budget.

Comment by Lawrence Jay Kramer, 8/5/2010:

I agree with much of this, but I think we have to add oil to the mix.  A lot of our trade deficit is attributable to oil, which is not a mercantilist problem.  We need to get off oil for lots of reasons, but the negative effects of the trade deficit it causes is one of them.

I also don't believe that all stimulative spending is bad.  Our infrastructure is tired and/or obsolete.  Repairs and upgrades pay for themselves in lower prices for everything the infrastructure supports.  There is no reason not to borrow to undertake these upgrades, especially while the private sector is depressed. 

Response to this comment by Howard Richman, 8/5/2010:
Good points, Jay.

Comment by Larry Walker, Jr., 8/8/2010:

I recently ordered a pair of Nike's, for my daughter, from Beijing, China. The cost was roughly $63 including shipping. Had I ordered the same shoes from a US site, they would have cost $179, plus shipping, plus sales taxes. Something's definitely wrong with this picture.