While the U.S. Economy is not in a "the-sky-is-falling" mode, the American public shouldn't adopt Bobby McFerrin's hit "Don't Worry, Be Happy" as its anthem, either, according to economic experts who faced off in a debate at the California CU League's annual convention.
Glenn Hubbard, dean of the Graduate School of Business at Columbia University and former chairman of the White House Council of Economic Advisors for President George W. Bush, represented the Republican side, while Gene Sperling, former White House National Economic Advisor under President Clinton, carried the banner for the Democrats. The two speakers discussed trade, the federal deficit and tax policy.
Trade-especially outsourcing-was a big issue in the recent presidential campaign, Hubbard noted.
"In 1999, we destroyed 33 million jobs, but created 35 million-a net gain," he said. "The outsourcing debate was about 100,000 or 200,000 jobs, a number that pales in comparison to 33 million."
A recent study found every job outsourced overseas creates two jobs in the U.S., Hubbard added.
Need For A Third Party?
America has two political parties, but needs three, Sperling began.
"There is the 'Sky is Falling' Party, which, admittedly, has many Democrats, and the 'Don't Worry, Be Happy' Party, which is heavily populated by Republicans," he said. "What we need is a third party, the 'Humility' Party, whose members acknowledge we don't know exactly know what is happening."
Outsourcing is not the sole scapegoat for the lack of job creation in today's economy, but Americans cannot simply "not worry," Sperling continued. In the long term, he is optimistic, because he believes China and India eventually will produce many middle class consumers, which will be good for U.S. producers.
"But, the Humility Party needs to figure out how to deal with the next two, three or five years. Because no one knows what bringing billions of people from China and India into the labor market is going to do," he said.
Defining the Deficit
"When I talk about the deficit, I will try to sound sterner than 'Don't Worry, Be Happy,'" Hubbard quipped. "The deficit is a long-term problem because of the promises we've made to ourselves, namely Social Security and Medicare. The way out, without a 50% tax increase, is to reduce benefit growth for higher income recipients. The earliest retiring Baby Boomers will leave work during President Bush's second term-which means it is happening now."
Sperling said the problem is: America should be saving for the coming debt-which he likened to a family with multiple teenage children who all want to go to college but have no college fund-and instead has a deficit.
"Both Democrats and Republicans want to have a free lunch. There is no way to pay for Social Security and Medicare without some sacrifice or trade off," Sperling observed. "If someone says he can do it, hold on to your wallet and don't trust him."
Tax Reform
One of the biggest issues on the tax front is the alternative minimum tax. Sperling said it was put in place to go after millionaires who were using creative accounting to avoid taxation. By 2010, he predicted, 75% of households with incomes between $75,000 and $100,000 will be paying the alternative minimum tax.
Said Hubbard: "This is causing the people who created the alternative minimum tax to ask, 'What have we done?'"
According to Hubbard, America needs a discussion of tax reform.
"We don't need to move all the way to a consumption tax, as some have said; we can fix the income tax. But, the tax reform debate will be a tough and bloody one."
Tax Bill A Disgrace
Sperling agreed with Hubbard the recently passed tax bill was a "disgrace."
"That's the way things work," he assessed. "I blame Republicans for demagoguery on anything resembling a tax. We need bipartisanship. Basic math says, if some pay less in taxes, others must pay more or the deficit goes up."
Sperling said he will judge President Bush's tax reform efforts by the retention of productivity, not a promise of tax cuts for everyone with a promise of "magic growth creation."
"We will hear a lot about all three of these issues in the coming years," said Hubbard.
