The clock is ticking. Massive tax hikes are threatening to push America’s already declining economic freedom over the “fiscal cliff,” a politician-made economic catastrophe.
President Obama’s proposal to avert the fiscal cliff is a $1.6 trillion tax hike plus new stimulus spending, along with expanded power for himself to raise the debt ceiling without congressional approval. The House Republican leadership has offered a counter to the President’s frivolous proposal, but the counterproposal appears to cave on tax increases and punt on entitlements. Heritage’s Alison Fraser and J. D. Foster point out that “the Republican counteroffer, to the extent it can be interpreted from the hazy details now available, is a dud. It is utterly unacceptable. It is bad policy, bad economics.”
Such bad policies and economics will have a drastic impact on our economic freedom, which is already in trouble after four years of the “Yes, We Can” Administration’s programs and spending. Since 2008, America’s economic freedom has been declining at alarming rates: America has fallen from fifth freest economy in the world to 10th freest. (continues below chart)
As the Heritage Foundation’s Index of Economic Freedom demonstrates, economic freedom is the path to prosperity. The decline of America’s economic freedom means that our economy is losing its capacity to achieve dynamic and sustained economic growth. That’s bad news for American individuals, families, and entrepreneurs, who will reap fewer rewards for their hard work in the future.
Waning economic freedom means lost opportunities for average Americans. The opportunity cost of bigger government is paid for in the loss of economic vitality. A future with fewer jobs and lower incomes can wait at the bottom of the fiscal cliff, or it can follow just as surely from ill-designed policies to avoid it.
There is a better way. The Heritage Foundation has proposed Saving the American Dream, a sweeping pro-growth tax and spending reform roadmap designed to grow the economy and restructure entitlement programs to provide real economic freedom and long-term security for the American people.
As Heritage’s Kim Holmes noted in Understanding American Prosperity, “All of us—not just our politicians—must be vigilant, determined to safeguard liberty and the American Dream. And that means understanding that the foundation of American prosperity rests in economic freedom.”
Posted in Enterprise and Free Markets
By Ariel Cohen and Anatoliy Khomenko
As the Arctic ice cap is decreasing in size, the international race for Arctic resources is heating up.
The High North countries—including Russia, Denmark, Norway, and Canada—are scrambling to lay claims on previously inaccessible giant oil reserves and begin their development. Richard Weitz, Ph.D., senior fellow at Hudson Institute, recently published a report on the subject that comes to an unpalatable conclusion: “U.S. is dead last in committing resources to the Arctic mission.”
There are a number of reasons for that strategic blunder. First is the lack of public and government attention to the issue and an unwillingness to allocate resources to Arctic exploration. There are certainly some costs involved—the U.S. spent a total of $5.6 million in the Arctic in 2008—but, as The Heritage Foundation rightly notes, that is “a pittance compared to the billions of dollars of Arctic natural resources that are at stake.”
A key national interest like this is not an appropriate target for budget cuts. After all, if successful, Arctic exploration could solve multiple economic problems, from creating jobs to reducing dependency on foreign oil from unstable regions.
Another reason is that the U.S. is behind countries like Russia and Canada in naval assets and technologies necessary for Arctic exploration and development. Compared to Russia’s flotilla of 18 icebreakers, including seven nuclear-powered ones, the U.S. only has three, two of which are nearing the end of their service lives. Russia is developing new models of nuclear ice breakers, anticipating demand for their services, but unlike Russia, the U.S. government and the private sector are hesitant to commit more funds to building and developing new icebreakers given the current economic situation.
Weitz believes that the Arctic “is not fated to become an arena of international conflict” and that most of the disputes will be resolved with international cooperation or negotiations through intergovernmental organizations. However, Russia’s increasingly aggressive posture in the Arctic suggests otherwise.
As we wrote, Russia “is increasingly relying on power, not international law, to settle its claims.” To support its Arctic claims, Moscow not only deployed civilian research expeditions; it also resumed military navy and air patrols of the region for the first time since the end of the Cold War. And unlike the U.S., Russia has a number of elite military units trained specifically for combat in the Arctic.
We further concluded that that such an aggressive stance and “the current rush to dominate the Arctic Ocean and everything under it indicates that greed and aggression characterize the new Russian polar bear.” Under these circumstances, it remains to be seen whether Russia will use diplomacy, as Weitz outlines. Even if they do, at this point in time it is Russia, not the U.S., who is able to negotiate from a position of strength in the Arctic.
Finally, Weitz, mentions that the Arctic countries may use the U.N. Law of the Seas Treaty (LOST) to make resolve disputes. The U.S. is not a party to LOST and thus cannot use the same international legal mechanisms, which he believes somehow may put the U.S. at a disadvantage, as Washington would not be able to use the same international legal mechanisms to enforce its claims as the other Arctic countries. Still, as we wrote before, the claims may still be legally enforceable using President Harry Truman’s Presidential Proclamation No. 2667, which declares that “any hydrocarbon or other resources discovered beneath the U.S. continental shelf are the property of the United States.”
To conclude, the U.S. should secure a strong position in the Arctic. Heritage Foundation scholars have written extensively on the issue, and the primary suggestions could be summarized as follows:
- Increase budget spending on Arctic operations, including oil exploration, U.S. coast guard maintenance, and acquisition of icebreakers;
- Check Russian activities in the Arctic;
- Negotiate with other countries with disputed Arctic claims who also oppose Russia’s expansion and are likely to be more friendly to the U.S.;
- Establish secure control over the region with the help of U.S. NATO allies; and
- Using NATO, expand cooperation with other international security organizations, especially EUROCOM, in order to maximize U.S. presence in the region.
The stakes in the Arctic are too high for the U.S. to procrastinate on addressing its challenges in the region.
For more detailed information about Heritage’s suggested policies to revive U.S. presence in the Arctic, see these writings:
- The New Cold War: Reviving the U.S. Presence in the Arctic
- Russia’s Race for the Arctic
- From Russian Competition to Natural Resources Access: Recasting U.S. Arctic Policy
Ariel Cohen PhD. is a Senior Research Fellow for Russian and Eurasian Studies and International Energy Policy at The Heritage Foundation http://www.heritage.org/ and he contributes Posts at The Foundry.
The United States Coast Guard is being left behind in the Arctic. While countries such as Russia are building up their icebreaker fleet and actively increasing their presence in the Arctic, the United States is losing its only form of sovereignty in the region.
On December 1, Rear Admiral Jeffrey M. Garrett, U.S. Coast Guard, testified before Congress on protecting U.S. sovereignty in the Arctic. He stated in Second Line of Defense that “the Icebreaker fleet represents the main surface presence that the U.S. can exert in what is essentially a maritime domain in the Arctic Ocean.” Yet today, the Coast Guard has an icebreaker fleet of only three ships. Worse yet, two of these ships are out of commission due to maintenance work and will not be available for at least seven more years.
The lone icebreaker in commission is the USCGC Healy, which conducts all types of missions from search and rescue to navigational aid to scientific research. Though the ship has been effective at its job in the Arctic, it is designed to break through ice of only medium thickness; for ice of heavy thickness, the Healy is absolutely useless. And like the other two icebreakers, it is quickly aging.
Without efforts to modernize the fleet, the future of the U.S. national maritime interest and security in the Arctic is looking pretty bleak. Icebreakers are a necessity in the region, and without them the U.S. might as well throw in the towel. These ships are key to year-round access to the Arctic and are the only U.S. insurance policy for future hazardous events. If something happens to the Healy, then the United States would not only lose access to the region but would not be able to react to potential oil spills and would become less effective in search-and-rescue missions.
Complicating matters even further, ice in the Arctic is melting, producing more ocean area for the transportation of goods and services in the region. Essentially, whoever best utilizes this route will control trade and transportation of goods and materials in the upper hemisphere. With all other nations around the Arctic building their icebreaker fleets and exploiting the key transportation route that connects the Atlantic and Pacific Oceans, the United States is falling behind.
In order to create an icebreaking fleet to maintain U.S. presence in the region, the Administration should look toward privatizing the fleet. Allowing private companies to own and operate the U.S. icebreaking fleet and perform national security functions would not only allow for crucial modernization but also save federal dollars and expand U.S. capabilities in the Arctic. This is particularly important at a time when the government is looking to cut corners in federal spending.
Ultimately, something must be done. If the U.S. does not act fast, it will come in last in the race for the Arctic.
Tyler Davis is currently a member of the Young Leaders Program at The Heritage Foundation. For more information on interning at Heritage, please visit: http://www.heritage.org/about/departments/ylp.cfm
Posted in American Leadership
- The Coast Guard needs new icebreakers to protect U.S. interests in the Arctic (seattletimes.nwsource.com)
- U.S. Subcommittee: USCG Needs Icebreakers (gcaptain.com)
- AP Interview: lt. gov. calls for US icebreakers (seattletimes.nwsource.com)
- Congress and White House differ over icebreakers (seattletimes.nwsource.com)
- Polar icebreaker dispute ties up Coast Guard appropriations (cnn.com)
- AP Interview: Lt. Gov. calls for US icebreakers (seattletimes.nwsource.com)
December 9, 2011 at 10:16 am
If U.S. history is a painting on a giant canvas, President Barack Obama’s speech this week in Osawatomie, Kansas, is a thick coat of whitewash layered all over it, and the failure of the last three years lies underneath. The President’s pretense is that, no, it’s not Obamanomics that has caused persistent unemployment, stunted growth and record deficits–it’s supply side economics!
Talk about audacity.
The President’s speech was a naked portrayal of his vision of America–one where inequality runs rampant, where the American dream is nearly dead, where the rich oppress the poor, where education is undervalued. As Charles Krauthammer observes this morning in The Washington Post, “That’s the kind of damning observation the opposition brings up when you’ve been in office three years.”
Indeed, what was glaringly absent from the President’s portrait was the fact that his economic policies have failed to put Americans back to work and his absolute inability to lead Washington toward combating rampant government spending. His solution, moreover, was more of the same stuff that has failed spectacularly for him: government as the great savior.
But in President Obama’s mind, it is others who offer ideas that don’t work, not him. He points to “a certain crowd in Washington” that argues for tax cuts and reduced regulations, calling it “a simple theory” that “fits well on a bumper sticker” but “has never worked.”
Correction, Mr. President. It has worked–time and time again throughout history. The trouble is, Mr. Obama has never tried it, and the Keynesian economic policies he enacted fell flat on their face, just as they have throughout history.
It started with a massive $787 billion stimulus bill that White House economists predicted would create (not merely save) 3.3 million net jobs by 2010. It was Keynesian economics at its finest, based on the premise that government spending would spark demand and put Americans back to work.
It didn’t. Some 13.3 million Americans remain out of work, the unemployment rate has hovered between 8 and 10 percent throughout Obama’s presidency, and economic growth has been stuck on slow. In fact, today America is witnessing the longest stretch of such high unemployment in the postwar era. Meanwhile, job creation has hit a record low, as Heritage’s James Sherk explains:
Fewer existing businesses are expanding, while fewer entrepreneurs are starting new businesses. In the first quarter of 2011, the number of workers hired in new business establishments fell to just 660,000, 27 percent fewer than when the recession began. This is the lowest number of workers hired at new businesses that the Bureau of Labor Statistics has ever recorded–lower even than the worst points of the recession.
Yet despite these numbers — and the fact that President Obama had near-free rein to enact the Keynesian economic policies he saw fit — the President is now demagoguing the one economic policy he hasn’t tried — supply-side economics — while calling for more government spending all as America’s debt is deepening. He would do better to study history and get a grasp of how cutting taxes and freeing the market has worked when employed by both Democrats and Republicans.
Lowering tax rates, thereby allowing people to keep and invest more of the money that is rightfully theirs, has proven good for the economy time and time again. In the 1920s, 1960s, and 1980s, tax rate reductions resulted in faster growth, rising incomes, and more job creation. And despite the President’s claim that cutting taxes only helps the rich, when tax rates were lowered in those decades, higher-income Americans paid an even greater share of the tax burden because they had fewer reasons to hide, shelter, and under-report income. But if taxes are increased — as President Obama continues to threaten — the price of working, saving, investing, and taking risks goes up, too.
History bears this out. Daniel Mitchell writes that in the 1920s, under Presidents Warren Harding and Calvin Coolidge, the top tax rate was reduced from 73 percent to 25 percent. The result? The economy expanded, growing by 59 percent between 1921 and 1929, with annual economic growth averaging more than 6 percent. Under President Kennedy, the top rate dropped from 91 percent in 1963 to 70 percent by 1965. The result? Between 1961 and 1968, the economy expanded by more than 42 percent, with average annual growth of more than 5 percent. Under President Reagan, the top tax rate fell from 70 percent in 1980 to 28 percent by 1988, leading to incredible economic expansion and average growth of nearly 4 percent. Finally, in the six quarters following the 2003 tax cuts, the GDP’s growth rate shot up to 4.1 percent from 1.7 percent before.
Our true choice is not between tax reduction, on the one hand, and the avoidance of large federal deficits on the other. It is increasingly clear that no matter what party is in power, so long as our national security needs keep rising, an economy hampered by restrictive tax rates will never produce enough revenues to balance our budget just as it will never produce enough jobs or enough profits.
Unfortunately, President Obama does not appear open to advice, nor does he seem cognizant of history–be it that of 10, 20, 40, or 90 years ago, or even his experience of the last three years. Instead, he is damning the torpedoes and continuing to pursue a liberal, progressive agenda that has proven to be a failure. As they have for the past three years, Americans will pay the price.
- Britain is the lone holdout on a deal agreed to today by 26 European countries to enact strict caps on government spending and borrowing in their efforts to save the euro and tackle the continent’s fiscal crisis.
- Virginia Tech is reeling following the shooting of a 39-year-old police officer in a school parking lot. Reports say that the same gun was used to kill the officer and the gunman.
- Militias in Libya have until December 20 to hand in their weapons and leave the capital city Tripoli under notice given by the country’s interim government.
- Attorney General Eric Holder testified before the House on the botched “Fast and Furious” gun-running scandal, insisting that “Nobody at the Justice Department has lied” and that lying is a matter of a person’s “state of mind.”
- LUNCHTIME CHAT: Join us today from 12-1 PM for a live Web chat on the latest on tensions in Pakistan following the NATO strike two weeks ago.
- Obama Channels Hugo Chavez, Shows Why He Can’t Lead On The Economy (forbes.com)
- Mike Konczal on 2011: The Lost Year for Obama Economic Policy (delong.typepad.com)
- Barack Obama, economics professor (steveprestegard.com)
- In Kansas, Obama Emulates Dorothy: ‘Lions and Tigers and Capitalists! Oh, My!’ (lettingfreedomring.com)
- Dr. David Barton on Why President Obama Must be Defeated in 2012 (twighlightslastgleaming.wordpress.com)
- 5 Ways the 2012 Election Has Changed Since the Super Committee’s Failure (athomesense.wordpress.com)