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12-7-2011 News
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Former CBO Director Advocates Aggressive Growth Policies

Doug Holtz-Eakin claims he’s confident the U.S. can solve its enormous budgetary issues. But when he spoke to attendees at the Metals Service Center Institute’s November Aluminum Products Division meeting in Naples, Fla., the former director of the nonpartisan Congressional Budget Office sounded like anything but an optimist.

Though Holtz-Eakin does not believe the economy is facing a double-dip recession, in part because “there’s nothing left to go wrong,” he sees a host of policy and structural issues that are impeding the recovery from the recession.

Two typical drivers of an economic rebound—consumer and government spending—are sidelined this time around, Holtz-Eakin said. Consumers continue to suffer from high unemployment and declining home values, while government agencies at the local, state and federal levels are in even worse financial shape than most homeowners.

Exports are one bright spot for the U.S. economy, although “every other major economy is trying to do the same thing,” he said. That leaves the business sector to lead the way. Unfortunately, the federal government’s policies toward industry are not favorable to growth, he added.

“We should be adopting ruthlessly aggressive pro-growth policies,” Holtz-Eakin said. “Growth is the imperative, but health care trumps growth, green trumps growth and labor issues trump growth.”

Downside factors to a healthy recovery are plentiful, he said. They include financial shocks emanating from the European debt crisis, which serve as a drag on the U.S. economy in several ways, plus rising oil prices and the tenuous fiscal position of the federal government.

“I have never seen anything like this,” he said, citing the United States’ debt to GDP ratio of more than 90 percent. Financing such enormous debt acts as a massive penalty on growth. Moreover, the administration and Congress have made no progress in addressing the debt problem, he added. His view was corroborated later in the month by the failure of the Super Committee to reach an agreement on spending cuts.

While reining in spending is paramount, there are other areas in need of reform, including taxation and the regulatory climate for businesses. Tax reform is particularly difficult because the kind of changes that would generate economic growth are often poison at the ballot box. “It’s easier to raise taxes on businesses than people,” he noted. He advocates a system that rewards investment and innovation and taxes consumption, such as national sales and value-added taxes.

  
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