Policy Documents

A Supply-Side Solution

John Hendrickson –
March 1, 2010


"Actually, the national budget now governs the economy. Unfortunately, it is becoming more and more abnormal. For years we have been spending far beyond our means," noted General Douglas MacArthur in his retirement as Chairman of the Sperry Rand Corporation.1 Although General MacArthur was speaking in the late 1950s, his truism still applies today. The nation is at a crossroads and the policies and philosophies that are shaping our economy need to be carefully considered. The federal government, along with many state and local governments, are confronted with a staggering financial crisis in an economy that is fighting to emerge out of a recession. Policymakers not only need to reform spending, that is, cut federal spending and balance the budget, but also enact across-the-board tax cuts to stimulate the private sector side of the economy.

President Barack Obama has recently introduced his $3.8 billion budget for the federal government, which if approved by Congress, will build upon and hasten the fiscal crisis the nation currently faces. The national debt is $12 trillion. The federal government ran a $1.4 trillion deficit in 2009, is projected to run a $1.6 trillion deficit for 2010, and it appears that deficits will continue into the future if federal spending is not checked.



The economy has shown signs of improvement with an increase in Gross Domestic Product (GDP), and unemployment has been reduced to 9.7 percent, although job creation is still sluggish. In fact the strong possibility of tax increases has brought a sense of uncertainty to the economy. "President Obama’s budget calls for $2 trillion in higher taxes over ten years after accounting for the $154 billion in tax cuts called for in the budget."

2 The private sector is very nervous over the progressive agenda of continued government spending and tax policy (including the proposed bank tax) and the reform agenda that centers on health care reform, cap and trade, and an increased regulatory state.





Although President Obama and Congress are not totally responsible for the fiscal crisis, the Administration has increased spending at dangerous levels with their Keynesian economic programs such as the $787 billion stimulus and other recession-fighting measures that have not worked. "Between 1789 and 2008, the U.S. government borrowed a total of $5.8 trillion. But in just three years of the Obama administration, the government is set to borrow $4.4 trillion more."

3 The consequence of this spending may result in inflation, a weak dollar, and a decline in the credit rating of the United States.