Government spending is the problem not the solution
Of all the highlights of Allan Meltzer's half-century as a distinguished monetarist -- advising Presidents Kennedy and Reagan, producing celebrated books on John Maynard Keynes and the history of the Federal Reserve -- none proved more memorable than a crisis session at 10 Downing Street in mid-1980.That happens to be what the Tea Party is pushing and what Republican leadership has also accepted as the wise course. If voters give Republicans the chance they will have an opportunity to get us on the path to prosperity for everyone again.
A group of 346 noted economists had just written a scathing open letter to Prime Minister Margaret Thatcher, predicting that her tough fiscal policies would "deepen the depression, erode the industrial base, and threaten social stability." Thatcher wanted to make absolutely certain her unpopular attack on huge deficits and rampant spending, in the face of high unemployment and a weak economy, was the right one.
So Thatcher summoned Meltzer, along with a group of trusted advisors, to explain why the experts were wrong. Even leaders of her own party advised Thatcher to make what they called a 'U-Turn,' and enact a big spending program to pull Britain out of recession. "Our job was to explain why lower deficits and spending discipline were the key to recovery," recalls Meltzer.
Thatcher was regally unamused by arcane jargon. "Being right on the economics wasn't enough," intones Meltzer. "She made it clear that our job was to explain it so she could understand it. If we didn't, she made it clear we were wasting her time. She'd say, 'You're not telling me what I need to know.'"
Thatcher stuck with draconian policies, invoking the battle chant "The Lady's Not for Turning." She launched Britain on years of balanced budgets, modest spending increases, falling joblessness, and extraordinary economic growth.
For Meltzer, the courageous, damn-the-sages stance that Thatcher took three decades ago should guide President Obama today. "If Obama announced a strategy to deal with the long-term debt and stopped doing things to increase the uncertainty that businesses face, it would do a great deal to stimulate the economy," declares the 82-year old Meltzer.
Meltzer is right, and most of the "experts" -- from Paul Krugman to Ben Bernanke -- are wrong. The best stimulus is a solid, credible plan to radically reduce government spending, starting right now.