Dear 45
Feb 23, 2016 - 10:00am

Dear 45: In This Weak Economy, Doing Nothing Is Not an Option

The American economy is struggling, while America’s fiscal policy is on a disastrous trajectory, largely due to federal entitlement programs that cannot continue in their current form. Nowhere will your leadership be more needed, or more challenged, than in decisively addressing these twin problems.

But lead you must, and quickly.

These issues of economic weakness and fiscal excess are intertwined. A strong economy would provide more resources, in turn reducing budget deficits and making entitlement reform easier.  At the same time, putting the nation’s fiscal house in order would strengthen our economy by allowing a more rational, more productive use of the nation’s resources in the long run.

Fiscal reforms would also substantially reduce uncertainties about the future -- uncertainties that are currently inhibiting the willingness of individuals and businesses to invest in our economy.  After eight years of neglect, it will fall to you and your administration to lead the way in resolving these issues.  Further delay is no longer an option.

Now seven years into the slowest recovery ever from a recession, you may be tempted to focus on quick-fix palliatives. This would be the wrong course. While restoring growth in the near term is important, restoring growth in the nation’s long-run economic potential is just as important, if not more so. Fortunately, under today’s circumstances, an effective solution for the short term is likely to be an effective solution for the long term, and vice versa. 

A good example is regulatory reform.  Your predecessor’s administration nearly tied the economy in knots with a torrent of job-killing regulations.  To be sure, some regulations are economically beneficial and some necessary. But when proper cost-benefit analysis goes out the window, and new regulations pour out almost daily, then, as we saw, the private sector simply cannot cope, investment and job creation suffer. Sound regulatory reform would allow American businesses a chance to catch their breath so they can focus less on Washington’s intrusions and more on growing their businesses and competing internationally.


Given a respite, America’s businesses could regain their footing, providing the economy a quick lift.  Sound regulatory reform would also produce smarter regulations achieving their proper objectives at less cost to the economy.  This and the greater certainty that would follow would go far to improving the economy’s long-run prospects.

Another good example is adequate investment in the nation’s infrastructure, while another is immigration reform, and another is expanding free trade. Comprehensive tax reform would also provide a big boost to the U.S. economy.  Reducing tax rates so that American workers and businesses can compete in the global economy is essential, as are having a competitive international tax system, proper cost recovery systems, and so on.  Done well, comprehensive tax reform can significantly raise the economy’s long-run potential.  Comprehensive tax reform can also give the economy a significant short-run boost by instilling greater confidence in the future, thus encouraging more investment in productive capacity today.

Fiscal policy imposes another pervasive drag on the U.S. economy.  Large budget deficits misallocate domestic saving away from more productive uses. Large budget deficits also create yet another source of investment-draining uncertainty as businesses know the current fiscal trajectory is unsustainable and therefore may worry about the future actions the federal government may take. 

Social Security, Medicare, and Medicaid are fundamental components of the social safety net, providing economic security to seniors, the poor, and many others.  They are also the main drivers of the federal government’s rapidly rising budget deficits.  As you well know, these programs are unaffordable and unsustainable in their current forms.  For the most part, your predecessor chose to sit idly by, except where he chose to increase spending further.  For the nation’s sake, you cannot do likewise.

Reforms in these programs will require leadership.  They will require cooperation with Congress.  They will almost surely require a level of bipartisan collaboration that has been difficult to come by in recent years. They will also require a deep, ongoing conversation with the American people to explain the problems and the solutions.  In short, reforms won’t be easy, but neither failure nor delay is an option. 

You ran for the presidency to do big things.  After ensuring the nation’s security, none will be bigger than restoring our economy to robust growth and restoring soundness to the nation’s finances.  We stand ready and eager to help.