Bake a bigger economic pie, opined Harvard Business School professor Thomas K. McCraw, in the November 11, 2012 New York Times. That’s what Alexander Hamilton tried to do in 1789, when he became the nation’s first treasury secretary. The new federal government and the states were broke, together owning about $74 million, including $12 million to Dutch banks. So what did he do? First, Hamilton looked at the problem from a political perspective: To extinguish a Debt which exists and to avoid contracting more are ideas always favored by public feeling and opinion, but to pay Taxes for the one or the other purpose, which are the only way of avoiding the evil, is always more or less unpopular.
Instead, as McCraw explained, Hamilton “essentially bet that the country’s prosperity would be strong enough to grow it out of the crisis, provided he could create a climate of predictability and promote the release of pent-up economic energy.”
McCraw went on to describe Hamilton’s strategy, which included paying off foreign debt by rolling it into new loans from abroad, persuading Congress to issue new bonds to replace existing obligations, and establishing the for-profit Bank of the United States, a move that injected the capital would be entrepreneurs needed to start new enterprises.
It would be interesting to know what Nate Silver, author of the 2012 New York Times bestseller, The Signal and the Noise, would have to say about applying Hamilton’s strategy today. In a January 16, 2013 New York Times article, he sorted out the things government spends money on and found that social security and health care have been increasing faster than the gross domestic product and considerably faster than inflation.
What are our options? “…if we can’t slow the rate of growth in health care expenditures, we’ll either have to raise taxes, cut other government spending or continue to run huge deficits. Or we could hope to grow our way out of the problem, but health care expenditures may be impeding private sector growth.”
Okay, so why don’t we just cut entitlement spending? We could but “on a political level, cuts in entitlement programs are liable to be more noticeable to individual voters than cuts to things like infrastructure spending. A 10 percent reduction in the amount allocated to bridge repair, or in the amount of government-sponsored energy research will affect individual citizens less directly (even if they are perhaps ultimately more economically damaging)….” Hmm…this sounds familiar.
