America should turn to Reaganomics again

The financial bazooka has created havoc for the US economy. Confidence is lacking in the US economy which is the main driver. There is a very nice article written by my friend Lynn Forester De Rothschild in Huffington Post titled Restoring capitalism on November 10, 2011, sharing important insight. She stated: President Obama has broken trust with the American people. Not only has he left the Americans more bitterly divided than ever imaginable, but since the beginning of his presidency, 1.3 million more Americans are unemployed, 913,000 private sector jobs have been destroyed, 13 million people have been added to food stamp dependency and over six million have lost their homes. While USA economy needs 90,000 new jobs each month just to keep up with the national birth rate, it has reached that threshold only nine times since February 2009.
All that is bad enough, but at the same time US government has increased the debt burden from $5.8 trillion in 2008 [40.3 per cent of GDP] to over $9 trillion in 2011 [67 per cent of GDP]. And, US annual federal government budget deficit has grown from $458 billion in 2008 to $1.7 trillion in 2011. Only 19 per cent of Americans “always” or “mostly” trust the government to do what is right, down from 75 per cent in 1958. Millions are fed up and are opting to “starve the beast”. That is not crazy.
Mr President, if you can follow Milton Friedman’s economic insights [Nobel Laureate of 1976 from University of Chicago, USA], you will surely see through this crisis with ease. You have taught at University of Chicago Law School and you have great regard for the school.
The only way President Barack Obama and his economic team can solve the US economic woes is to adopt “common-sense” Reaganomics, the policy. Reaganomics would fix any economy that’s in the doldrums. It’s not a magic sauce, it’s common sense. How can Obama do it?…Follow these five simple steps adopted during Reagan era in 1980’s. Step 1: The US has got to get rid of all federal taxes in the extreme and replace them with a low-rate flat tax on business net sales, and on personal unadjusted gross income. Step 2: The US will have to have spending restraints. Government spending causes unemployment, it does not cure unemployment. Government spending has never raised the GDP. It’s the tax cut that enhances the GDP growth. Empirically proven.
Step 3: US needs sound money. Fed Chairman Ben Bernanke is running the least sound monetary policy I’ve ever heard of. Markets don’t like uncertainty and chaotic moves. The US has increased it money supply by 138.6 per cent from Sept-2008 from $851 billion to Dec-2010 by $2.03 trillion. Price inflation can be decreased through monetary deflation. This was advocated by Late Nobel Laureate Milton Friedman in his book Money Mischief-Episode in monetary history. I openly admit that I follow Milton Friedman – the greatest Nobel Laureate in Economics of modern epoch along with Prof Gary Becker at Uni. of Chicago, Booth School. Step 4: The US need regulations, but they don’t need those regulations to go beyond the purpose at hand and create collateral damage. The regulatory policies are really way off here.
Step 5: Lastly, the US needs free trade. Foreigners produce some things better than Americans do and US produce some things better than foreigners. It would be foolish in the extreme if America didn’t sell them those things US produce better than they do in exchange for those things they produce better than US do.
I think that the USA can win its top rating back, but only when economic policies are completely turned around. However, President Barack Obama’s administration’s only economic plan seemed to be to expand government ownership of the means of production.
Washington has nationalised the health care industry pretty extensively and is doing it with home building as well. Obama tried it with the auto industry as well. So Obama administration has moved very, very deliberately and purposefully toward extending government ownership of the means of production. That to me, if you read the tea leaves, is what they are doing. It is not what they are saying they are doing, but that is what they actually are doing. People don’t work to pay taxes, people work to get what they can after taxes. It’s that very private incentive that motivates them to work. If you pay people not to work and tax them if they do work, don’t be surprised if you find a lot of people not working.” Current economic woes started to form under President George W Bush, but have been made worse by Obama’s policies. There’s a wedge driven between wages paid and wages received and that wedge is the tax/government spending wedge. That wedge has grown dramatically in the last 4 ½ years…under W and a Republican administration and…under Obama. Bipartisan ignorance has led America to this very disastrously desolate state.

Shan Saeed is a graduate from Booth School of Business, University of Chicago, and IBA Karachi with 12 years of financial market. He Blogs at www.economistshan.blogspot.com