The following is an op-ed that was published in my local newspaper. You can find the original link here.
Column – Clint Townsend: G-20 needs market solutions 07/04/10
MIDLAND, Mich. – President Obama promised world leaders at Toronto’s G-20 summit to increase global demand, largely building on the same promise from former G-20 meetings in both Pittsburgh and London.
He touted increased demand as the key for global economic recovery and domestic revitalization, but history shows that increased public spending programs will achieve neither. Governments, both here and abroad, must reject President Obama’s Keynesian approach and look for new solutions that include balanced budgets, deficit reduction, and more prudent monetary policies.
The overwhelming conclusion met by leaders in Toronto was to scrap former policies of easy credit and increased government spending and instead consider slashing sovereign deficits in half. European leaders likely fear their economies may end up like Greece’s if they do not take swift action. For once it seems as though the United States should heed the advice of Europeans and support initiatives to ease pressures on the government credit card.
Unnecessary military expenditures, not to be confused with essential defense spending, would be an easy place to start. President Obama ran on a platform to wind down the Iraq and Afghanistan wars, two places where billions of taxpayer dollars have been spent. Perhaps the president could also consider closing inessential bases and embassies in Europe and Japan that do not contribute to vital national defense interests; at the same time he would recapture confidence from his discouraged liberal base. These actions would immediately save billions of dollars that could pay down the looming $13 trillion deficit.
Concurrently, Republicans once again have a chance to place balanced budgets at the top of public discourse. Not only is the subject endlessly pertinent to current fiscal hurdles, but Republicans could benefit in November with the help of Tea Party activists who are searching for more judicious economic policies. In response to balanced-budget revivalists, President Obama and congressional Democrats passed pay-go. Unfortunately, pay-go merely makes increased borrowing and taxing more inevitable, not to mention that it simply won’t be honored. In fact, only days after pay-go was enacted Congress violated its own rule which is evidence enough to remain skeptical of its supposed payoffs. To combat breeching its own rules, Congress needs to adopt a balanced budget rule or amendment, a measure that would add teeth to the concept. Only after annual budgets find balance will the American people and the world at large believe that the United States is sincere about getting its fiscal house in order.
Lastly, the monetary authorities at the Federal Reserve, namely Chairman Ben Bernanke, have to adopt more market-oriented interest rate policies. Current interest rates of virtually zero percent only contribute to an already shaky consumption based economy. Easy money policies created the sub-prime housing bubble, and now extending those same policies is leading to an inevitable dollar crash, a situation that would depress economies the world over.
China and other nations have been less willing to further take on our debt because they realize that our monetary policy is building a house of cards. Although the dollar maintains a stronger position over the euro, the true test of a currency’s value is a comparison to gold rates. Recently, gold hit an all-time high, indicating the weakening or inflation of the dollar, yet Bernanke continues to invite inflation as an agent for economic growth.
As America enters a new era of economic uncertainty, new solutions must be offered. Stimulus packages, easy credit and more government spending will only prolong the pain, as it did in the Great Depression.
Now policy-makers must look toward market solutions, including balanced budgets, decreased debt and a more hawkish monetary policy to pave the path to economic recovery.
Clint Townsend is an Amarillo resident attending the University of North Texas, where he is majoring in economics and political science. He currently is in Midland, Mich., on a research fellowship.