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A recent Wall Street Journal article describes The Magnitude of the Mess We're In. The authors are some of America's wisest and most experienced economists who, regarding our current problems, truly can see the forest for the trees. Simply stated, they know what they are talking about.

George P. Shultz is an American economist, statesman, and businessman. He served as the United States Secretary of Labor from 1969 to 1970, as the U.S. Secretary of the Treasury from 1972 to 1974, and as the U.S. Secretary of State from 1982 to 1989. Before entering politics, he was professor of economics at MIT and the University of Chicago, serving as Dean of the University of Chicago Graduate School of Business from 1962 to 1969. He is currently a distinguished fellow at Stanford University's Hoover Institution.

Michael J. Boskin is the T. M. Friedman Professor of Economics at Stanford University. In government he is best known for serving as chair of the Council of Economic Advisors under George H. W. Bush and as Chairman of a Congressional Advisory Commission on the Consumer Price Index.

Allan H. Meltzer is an American economist and professor of Political Economy at Carnegie Mellon University's Tepper School of Business in Pittsburgh, Pennsylvania. He is the author of dozens of academic papers and books on monetary policy and the Federal Reserve Bank, and is considered one of the world's foremost experts.

John B. Taylor is the Mary and Robert Raymond Professor of Economics at Stanford University, and the George P. Shultz Senior Fellow in Economics at Stanford University's Hoover Institution. Federal Reserve Chairman Ben Bernanke has said that Taylor's "influence on monetary theory and policy has been profound." Taylor is considered a likely future winner of the Nobel Prize in Economics.

In their WSJ article they conclude:

Note the obvious solutions include trade liberalization, broadening the tax base and not raising tax rates, regulatory reform, and education reform. Also, they implicitly warn that staying with the Obama administration's current policy choices will end with an unmanageable crisis and "explosion". And that is an understatement!

Clearly, the above, esteemed economists are in agreement that Fixing the Economy Is Not Rocket Science. Romney's five-point plan, as described in today's American Thinker article, includes the above four obvious fixes.

Romney's plan also acknowledges that the availablity of cheap, abundant energy is uniquely necessary to boosting economic growth and middle class prosperity. Indeed, policies which prevent the use of America's energy wealth guarantee the continuing decline of the American middle class. And without a prosperous middle class the size of the tax base simply will never be sufficient to avoid a disastrous debt crisis.

Sometimes a few facts tell important stories. The American economy now is full of facts that tell stories that you really don't want, but need, to hear.

Where are we now?

Did you know that annual spending by the federal government now exceeds the 2007 level by about $1 trillion? With a slow economy, revenues are little changed. The result is an unprecedented string of federal budget deficits, $1.4 trillion in 2009, $1.3 trillion in 2010, $1.3 trillion in 2011, and another $1.2 trillion on the way this year. The four-year increase in borrowing amounts to $55,000 per U.S. household.

The amount of debt is one thing. The burden of interest payments is another. The Treasury now has a preponderance of its debt issued in very short-term durations, to take advantage of low short-term interest rates. It must frequently refinance this debt which, when added to the current deficit, means Treasury must raise $4 trillion this year alone. So the debt burden will explode when interest rates go up.

The government has to get the money to finance its spending by taxing or borrowing. While it might be tempting to conclude that we can just tax upper-income people, did you know that the U.S. income tax system is already very progressive? The top 1% pay 37% of all income taxes and 50% pay none.

Did you know that, during the last fiscal year, around three-quarters of the deficit was financed by the Federal Reserve? Foreign governments accounted for most of the rest, as American citizens' and institutions' purchases and sales netted to about zero. The Fed now owns one in six dollars of the national debt, the largest percentage of GDP in history, larger than even at the end of World War II.

The Fed has effectively replaced the entire interbank money market and large segments of other markets with itself. It determines the interest rate by declaring what it will pay on reserve balances at the Fed without regard for the supply and demand of money. By replacing large decentralized markets with centralized control by a few government officials, the Fed is distorting incentives and interfering with price discovery with unintended economic consequences.

Did you know that the Federal Reserve is now giving money to banks, effectively circumventing the appropriations process? To pay for quantitative easing—the purchase of government debt, mortgage-backed securities, etc.—the Fed credits banks with electronic deposits that are reserve balances at the Federal Reserve. These reserve balances have exploded to $1.5 trillion from $8 billion in September 2008.

The Fed now pays 0.25% interest on reserves it holds. So the Fed is paying the banks almost $4 billion a year. If interest rates rise to 2%, and the Federal Reserve raises the rate it pays on reserves correspondingly, the payment rises to $30 billion a year. Would Congress appropriate that kind of money to give—not lend—to banks?

The Fed's policy of keeping interest rates so low for so long means that the real rate (after accounting for inflation) is negative, thereby cutting significantly the real income of those who have saved for retirement over their lifetime.

The Consumer Financial Protection Bureau is also being financed by the Federal Reserve rather than by appropriations, severing the checks and balances needed for good government. And the Fed's Operation Twist, buying long-term and selling short-term debt, is substituting for the Treasury's traditional debt management.

This large expansion of reserves creates two-sided risks. If it is not unwound, the reserves could pour into the economy, causing inflation. In that event, the Fed will have effectively turned the government debt and mortgage-backed securities it purchased into money that will have an explosive impact. If reserves are unwound too quickly, banks may find it hard to adjust and pull back on loans. Unwinding would be hard to manage now, but will become ever harder the more the balance sheet rises.

The issue is not merely how much we spend, but how wisely, how effectively. Did you know that the federal government had 46 separate job-training programs? Yet a 47th for green jobs was added, and the success rate was so poor that the Department of Labor inspector general said it should be shut down. We need to get much better results from current programs, serving a more carefully targeted set of people with more effective programs that increase their opportunities.

Did you know that funding for federal regulatory agencies and their employment levels are at all-time highs? In 2010, the number of Federal Register pages devoted to proposed new rules broke its previous all-time record for the second consecutive year. It's up by 25% compared to 2008. These regulations alone will impose large costs and create heightened uncertainty for business and especially small business.

This is all bad enough, but where we are headed is even worse.

President Obama's budget will raise the federal debt-to-GDP ratio to 80.4% in two years, about double its level at the end of 2008, and a larger percentage point increase than Greece from the end of 2008 to the beginning of this year.

Under the president's budget, for example, the debt expands rapidly to $18.8 trillion from $10.8 trillion in 10 years. The interest costs alone will reach $743 billion a year, more than we are currently spending on Social Security, Medicare or national defense, even under the benign assumption of no inflationary increase or adverse bond-market reaction. For every one percentage point increase in interest rates above this projection, interest costs rise by more than $100 billion, more than current spending on veterans' health and the National Institutes of Health combined.

Worse, the unfunded long-run liabilities of Social Security, Medicare and Medicaid add tens of trillions of dollars to the debt, mostly due to rising real benefits per beneficiary. Before long, all the government will be able to do is finance the debt and pay pension and medical benefits. This spending will crowd out all other necessary government functions.

Did you know that the federal government used the bankruptcy of two auto companies to transfer money that belonged to debt holders such as pension funds and paid it to friendly labor unions? This greatly increased uncertainty about creditor rights under bankruptcy law.

The Fed is adding to the uncertainty of current policy. Quantitative easing as a policy tool is very hard to manage. Traders speculate whether and when the Fed will intervene next. The Fed can intervene without limit in any credit market—not only mortgage-backed securities but also securities backed by automobile loans or student loans. This raises questions about why an independent agency of government should have this power.

When businesses and households confront large-scale uncertainty, they tend to wait for more clarity to emerge before making major commitments to spend, invest and hire. Right now, they confront a mountain of regulatory uncertainty and a fiscal cliff that, if unattended, means a sharp increase in taxes and a sharp decline in spending bound to have adverse effect on the economy. Are you surprised that so much cash is waiting on the sidelines?

What's at stake?

We cannot count on problems elsewhere in the world to make Treasury securities a safe haven forever. We risk eventually losing the privilege and great benefit of lower interest rates from the dollar's role as the global reserve currency. In short, we risk passing an economic, fiscal and financial point of no return.

Suppose you were offered the job of Treasury secretary a few months from now. Would you accept? You would confront problems that are so daunting even Alexander Hamilton would have trouble preserving the full faith and credit of the United States. Our first Treasury secretary famously argued that one of a nation's greatest assets is its ability to issue debt, especially in a crisis. We needed to honor our Revolutionary War debt, he said, because the debt "foreign and domestic, was the price of liberty."

History has reconfirmed Hamilton's wisdom. As historian John Steele Gordon has written, our nation's ability to issue debt helped preserve the Union in the 1860s and defeat totalitarian governments in the 1940s. Today, government officials are issuing debt to finance pet projects and payoffs to interest groups, not some vital, let alone existential, national purpose.

The problems are close to being unmanageable now. If we stay on the current path, they will wind up being completely unmanageable, culminating in an unwelcome explosion and crisis.

The fixes are blindingly obvious. Economic theory, empirical studies and historical experience teach that the solutions are the lowest possible tax rates on the broadest base, sufficient to fund the necessary functions of government on balance over the business cycle; sound monetary policy; trade liberalization; spending control and entitlement reform; and regulatory, litigation and education reform. The need is clear. Why wait for disaster? The future is now.

American Thinker  

http://www.americanthinker.com/2012/09/fixing_the_economy_is_not_rocket_science.html

We are talking about a lot of wealth.  Thanks to fracking, America could be producing more oil and natural gas energy on a daily basis than current U.S. imports from Saudi Arabia, Iraq, Kuwait, Venezuela, Colombia, Algeria, Nigeria, and Russia combined.  The United States' combined recoverable natural gas, oil, and coal endowment is the largest on Earth. 

The impact of cheap energy boosts jobs in expanding circles.  Men with high school diplomas pull down $100,000 salaries in the oil and gas fields.  Next circle out: cheap natural gas has revived our steel industry, making American steel production globally competitive again.  Same for plastics and the chemical industry.  Healthy industries mean healthy towns, money for taxes, a sustainable social safety net.  A healthy country.

Improving our exports is not rocket science.  President George Bush negotiated trade agreements with 16 countries, leading to the creation or support of 18 million jobs, with one third in manufacturing.  That's our unemployment crisis right there. 

One of Romney's main stump speech talking points: the EU and China have negotiated 44 bilateral trade deals since Obama was elected.  Obama's new deals on America's behalf?  Zero.  Why?  Because another key Democrat voting bloc, the AFL-CIO, opposes trade agreements.

Romney will pursue trade actively, especially a major initiative, a free-trade zone with Latin America.  This is something the party might like to let Hispanic voters know about.  We can and will compete effectively to export manufactured goods.

Romney promises to reverse our longstanding passivity towards China.  He is breaking with all precedent here, Republican and Democrat.   He has a hard-hitting ad on Obama's loss of half a million jobs to China.  We are losing because we have agreed to compete in a rigged game.  Romney vows that that will stop.  As Romney says, "I don't see how you can have a trade relationship, on an open basis, with another nation if they're stealing a large part of what it is you sell."   Romney vows to fight for our manufacturing sector as no one ever has.

The invisible cost of government regulation ($10,000 per employee) is deadly to jobs for ordinary people.  The yearly cost of regulation on a single manufacturing firm is $700,000, enough to stop small businessmen from going near the manufacturing sector.  They don't have the cash flow to pay staff to fill out a million dollars' worth of government forms. 

Romney understands this deep in his bones.  He will repeal many of the Obama administrations new regulations on his first day in the Oval Office. 

Romney is proud of his record as governor of Massachusetts on education.   By the third year of his term, Massachusetts students ranked first nationally in both reading and math, the first state to reach this goal.  The 85% Democrat legislature tried to block charter schools, and Mitt vetoed the bill.  Black and Hispanic voters should be told about this over and over.

Romney's answer is the Tea Party principle: don't spend money you don't have.  He promises to balance the budget and cap the size of the government at 20% of GDP. 

Living within our means as a government is entirely possible.  Even fixing Social Security is not that complex.  We have to raise the retirement age a couple of years, and the problem is largely solved.  Romney and Ryan have a lot of good proposals with specifics that flesh out his promises.  This information is easy to find, but the politicized press doesn't want to report anything substantive on Romney.

Romney's case is simple.  With these five priorities, he can enable the American economy to grow by 4% a year again: use our energy wealth, increase trade agreements and take on China, improve education and job training so people can succeed in life, decrease stifling regulations, and balance the budget and reform entitlements.