Newt Gingrich, who has just won his first 2012 primary, comes across as the best economic-policy alternative among the Republican presidential contenders. The Speaker is an insightful man. He wants to cut government spending but realizes that it cannot be done chainsaw-style, like Ron Paul and Rick Santorum want to do. He also realizes where the long-term source of government budget problems is: the welfare state. His plan combines short-term policies to strengthen growth and restore reliability in the relation between government and the private sector, with long-term reforms that will over time eliminate the threat of fiscal doom that is currently hanging over the country.
Gingrich’s secret recipe is to combine structural solutions to spending and institutional stability. In isolation, these two strategies are good; together they form an excellent recipe for restoring America’s economic strength.
He has divided his economic-policy platform into two documents. First his general plan, which says:
Stop the 2013 tax increases to promote stability in the economy. Job creation improved after Congress extended tax relief for two years in December. We should make the rates permanent.
This point expresses the Speaker’s understanding for regulatory stability. His criticism of Obamacare has had a similar tone to it: businesses prefer stability and are even willing to pay a premium for it, if necessary.
Make the United States the most desirable location for new business investment through a bold series of tax cuts, including: Eliminating the capital gains tax … Dramatically reducing the corporate income tax … to 12.5%; Allowing for 100% expensing of new equipment to spur innovation and American manufacturing; Ending the death tax permanently.
He also wants an optional flat income tax at 15 percent. His tax policies are great in theory and could become good policy, provided Gingrich also has a good, long-term plan for reducing government spending. Is this on his horizon? Well, first he talks about regulations:
Remove obstacles to job creation imposed by destructive and ineffective regulations, programs and bureaucracies. Steps include: Repealing the Sarbanes-Oxley Act … Repealing the Community Reinvestment Act … Repealing the Dodd-Frank Law … Breaking up Fannie Mae and Freddie Mac … Replacing the Environmental Protection Agency with an Environmental Solutions Agency
These are all good ideas and will certainly reverse the trend toward an ever more business-hostile economy in America. But what about government spending? At first, the Speaker is rather vague on the spending issue , though his passionate resistance to government-run health insurance is worth noting. But then he says:
Balance the budget by growing the economy, controlling spending, implementing money saving reforms, and replacing destructive policies and regulatory agencies with new approaches. Repeal and replace Obamacare with a pro-jobs, pro-responsibility health plan that puts doctors and patients in charge of health decisions instead of bureaucrats.
His vagueness on how he intends to control spending and under exactly what conditions he intends to balance the budget is not all negative. It leaves a lot of latitude for him to choose a path to a balanced budget that takes other factors into consideration than just simple accounting measures.
His spending vagueness is also counter-balanced by his extended white paper on entitlement reform, where he makes the boldest and most accurate statement on the welfare state among any active American politician today:
The static twentieth-century entitlement and welfare model is undeniably failing, and Americans should no longer tolerate it.
In so many words, Newt Gingrich summarizes the policy implications of my book Remaking America: Welcome to the Dark Side of the Welfare State. No other active American politician exhibits such a profound understanding of the systemic problems we are faced with through the welfare state.
After noting that Social Security and Medicare are enormously stifling on the freedom and prosperity of America’s senior citizens, Gingrich outlines our nation’s choice for large-scale welfare reform. His first to alternatives are not acceptable:
A “Fantasy” Path that maintains that nothing is wrong, Social Security and Medicare will survive without any structural reforms, and that there are no problems with the “Welfare Empire” that keeps nearly 50 million Americans in poverty. An “Austerity” Path that concedes that our best days are behind us, then cuts benefits, rations care, and concedes that poverty will always be an inevitable facet of American life.
The second path, which combines spending cuts with constant or even higher taxes, is an example of what I refer to as the Dark Side of the Welfare State. It leads to perpetual austerity and gradually sinks a country into industrial poverty. Sweden is a tragic example of this.
Finally, there is a Gingrich “Growth and Innovation” Path that rejects the two previous notions, and attests that incremental change is not enough to meet our current challenges. This path insists that by unleashing choice and the power of the market, we can dramatically reduce inequality, create expansive opportunities for Americans of every income level, and overhaul our welfare and entitlement systems so that they are more secure, fairer, and can encourage even more economic growth.
Even though the Speaker does not explicitly say so, his ideas for reform effectively mean that entitlement programs would be privatized over an extended period of time. This gradualist approach to phasing out the welfare state is a welcome addition to the market of ideas where the Republican presidential candidates seem to sometimes be shopping blindfolded.
Growth and innovation means securing and strengthening Social Security by empowering Americans with the option to invest in personal savings accounts. This gives Americans ownership over their retirement and the opportunity to unleash the power of the market to enjoy prosperous retirements beyond their most optimistic expectations. At the same time, this reform will wipe out all future liabilities in the Social Security system. We would build on the successful models in Galveston, TX and Chile, where workers contribute into personal accounts and receive double the benefits that they would have under traditional social security models.
Not entirely unlike my Social Security reform model. As far as welfare reform goes, Gingrich sees the goal and is working hard to design a trajectory between today and the day when welfare reform is completed:
Growth and innovation means liberating the poor from the trap of the Welfare Empire through new programs that are tailored to local communities, that promote work and that incentivize lifelong study. Building on the success of the 1996 welfare reforms, block-granting all federal means tested welfare programs back to the states would help millions move from dependency to prosperity while saving taxpayer trillions.
The Speaker might want to consider the Charity Compact model for welfare reform.
His emphasis on long-term structural reform is impressive and stands out among the remaining Republican presidential candidates. If the choice was based strictly on economics and economic policy, Speaker Gingrich would edge out Governor Romney. His vision and insights about the complexity of welfare reform puts him ahead of the rest.
This does not mean that, e.g., Governor Romney is bad choice. On the contrary, he would make a very good president, especially for his leadership skills, his thorough private-sector experience and his deep belief in an unrelenting foreign policy.
Whether or not a Gingrich-Romney ticket (or Romney-Gingrich) is doable is a matter beyond the purview of this blog.