Sunday, April 24, 2011

How to Pay Off the National Debt and Solve Other Economic Problems

The competing deficit reduction proposals of President Barack Obama and Congressman Paul Ryan depend on long-run assumptions about economic growth, unemployment, and other economic variables.  Growth is clearly the most important factor.  Sustained high growth increases tax revenues more rapidly than planned expenditures (assuming no new major spending programs).

Therefore, the quickest and least painful way to eliminate deficits and pay down public debt is to project growth of 6% over the next 10-12 years.  If inadequate, raise the projection to 7%.  Learn from China!

A second problem is growing inequality in the distribution of income and wealth in America.  The top 1% has gained an increased share of national income and wealth in the past few decades.  One way to solve this problem is to change how we think about it.  We should consider the benefits going to the top 1% as a very powerful incentive for everyone to try to rise to the top 1% of income earners.

A third problem is to improve educational outcomes, especially in inner cities, so that America can win the future.   A quick solution is to lower the standards for success.  In that way, an increasing number of students will graduate with successful academic records.

Are these solutions any more absurd than what you hear from politicians and read from their supporters in the media and from some of the more ideological in the academy?