While most economists are predicting something between a long, slow recovery and the impossibility of repairing an economy buried in debt, entrepreneur Louis Woodhill believes the U.S. can come roaring back in just one or two years – with the right actions.
“We probably need 25 million new jobs to get to full employment from here,” he said. “But basically it could be done in a year or two at the outside if you did everything right.”
His recovery formula focuses on growing the gross domestic product. “If Vince Lombardy had been an economist instead of a football coach, he would have said economic growth is not the most important thing, it’s the only thing,” Woodhill said.
Woodhill isn’t your average economist though. He’s an engineer and software entrepreneur with skin in the game and personal experience putting capital to work to create jobs and wealth. But his economic musings are good enough for Forbes, RealClearMarkets.com, National Review Online and the Leadership Council of the Club For Growth.
Woodhill has been a vocal critic of stimulus spending, calling it, “Like going down to the Hudson River and stimulating it by taking out a bucket of water, walking three feet down stream and pouring it back in.”
Woodhill spoke at recent events sponsored by the Union of Patriots and FairTaxKC in Overland Park and Wichita about the potential for dramatic economic growth by reining in the Federal Reserve, stabilizing the dollar and eliminating the corporate income tax.
Woodhill’s first priority is to stop the Federal Reserve from paying banks for holding unnecessary reserves, a disincentive to circulating cash through loans and investment. “The very first thing you’d have to do is stop the Federal Reserve from paying interest on bank reserves.”
He said most people aren’t aware of the Fed’s October 6, 2008, decision to begin paying interest on bank reserves. “I wrote an article at the time predicting that it would crash the economy, it did. And the economy really can not recover until the Fed stops doing that.
Woodhill showed a series of five charts of economic indicators, the last from a Federal Reserve report. “Their own graphs say the whole system blew up the moment they did that, and they don’t notice it. They don’t read their own reports. These relationships have been stable for over 90 years and suddenly they go haywire like seismograph in an earthquake, and they don’t even notice this.”
Growth tames unfunded liabilities
Only economic growth will fill the holes in pension funds devastated by the Great Recession and reinvigorate Social Security according to Woodhill.
“The whole thing about the deficit, debt and entitlements is a function of the unquestioned assumption that from now on we’re going to grow at 2 percent a year.” Woodhill said the August 2010 Congressional Budget Office downward revision of GDP growth to 2.0 percent (pdf) misses the historical performance and potential of the U.S. economy.
“People in Washington are talking about budget cuts and tax increases and everybody’s basing all their numbers on this 2 percent growth. That’s like getting in a room and having 500 calories a day and talking about recipes. You’re going to starve to death no matter what you do. So the only thing worth doing is getting the growth rate up. Only growth solves our problems.”
“We grew at 3.85 percent (from) 1947-1971. It’s been about 3.74 percent for the whole history of the Republic. (If) the economy grows at 3.5 percent all the problems go away. We don’t need to change Social Security; we don’t need to change Medicare. We don’t need to change anything. The whole deficit goes away.”
Fair Tax plan
“We’ve been coasting along for 20 years and we’ve had the same corporate income tax while the rest of the world has been cutting their corporate income tax relentlessly,” Woodhill said.
He is a fan of the Fair Tax plan to abolish all federal personal and corporate income taxes, gift, estate, capital gains, alternative minimum, Social Security, Medicare, and self-employment taxes and replace them with a federal retail sales tax administered primarily by existing state sales tax authorities.
Woodhill said the Fair Tax will produce the fastest rate of economic growth because, “It doesn’t tax capital, savings or investment at all so you’ll have maximum savings and investment. You’ll have a very fast increase in fixed assets, a very fast increase in GDP, very fast increase in wages and everything will work.”
A small change in average economic growth during the 20th century would have made a big difference according to Woodhill. “If growth had been just 10 percent higher, right now GDP would be 2.2 times what it is now. If it had been 10 percent lower we probably would have lost World War II, and we probably would have lost the Cold War.”
“This country was created by fighting for freedom and we’ve been fighting for freedom ever since,” Woodhill said. American arms helped defeat monarchism during the American Revolution and World War I, fascism during World War II and communism during the Cold War, Woodhill said.
“The real threat to American freedom this time is not anything outside our borders” Woodhill said. “It’s progressivism.”
“The interesting thing about progressivism is that every other foe has tried to take our freedom away by force,” Woodhill said. “The progressives say, we’ll buy it from you and oh, by the way, we’re going to pay for it with your own money. They want us to sell them our freedom.”
Woodhill calls progressivism the time-release form of communism. “It’s the antithesis of freedom. It’s whole idea is to take all the power away, move it to Washington and give it to unaccountable experts and have them run everything.”
He told his Wichita audience there are three pillars of progressivism: the Federal Reserve; the Internal Revenue Service with the income tax, and the regulatory state epitomized by the Environmental Protection Agency, Food and Drug Administration and Health and Human Services. HHS is led by former Kansas governor Kathleen Sebelius who administers the Patient Protection and Affordable Care Act popularly known as Obamacare.
“Whatever they say about Obamacare, it’s worse than that,” Woodhill said. “Venture capital funding for new medical devices and new drugs has completely disappeared. The venture capital community will not put money into something that can’t make any money because of all these regulations and controls.”
“If President Obama was in charge of health care in 1950, his solution to polio would have been price controls on iron lungs,” Woodhill said.
Woodhill said it’s all about a competition for investment. “You’ve got to play it to win,” Woodhill said. “Oddly enough, capitalism is about capital. It’s about people’s decisions about where to invest capital. The whole game is getting investors, capitalists, business people to invest in your place, whether that’s the U.S. or Kansas.”
He says efforts in Kansas to reduce or eliminate the corporate and individual income tax are a good start.
President Obama offered a progressive prescription to heal the nation’s economy in his Dec. 20 speech in Osawatomie that Woodhill called the, “Second longest suicide note in history.”
Great Britain’s Labour Party labeled its own 700 page 1983 election manifesto the longest suicide note in history. “It talked about nationalizing everything, raising tax rates to 100 percent and government taking over everything.” Woodhill said. “Of course (Margaret) Thatcher wiped the Labour party out so badly in 1983 that it had to reform itself to Thatcherism to get back into power under Tony Blair.”
“This stuff all seems appealing to him and seems to make so much sense to him, but the American people are not going to buy this. They’re not going to buy the idea that after all the disasters of stimulus and Obamacare that the answer to our problems is to give more money and power to the government and have them control more things and direct more investment. His statement is the key is education and infrastructure is simply incorrect. That’s not the key. The key is economic freedom. Economic freedom is what produces prosperity.”
President Obama’s speech in Osawatomie harkened back to another famous progressive manifesto given there in 1910 by former president, Theodore Roosevelt, who sought to return to the White House in 1912 under the Bull Moose or Progressive Party.
“Remember, Roosevelt lost that election,” Woodhill said. “Do you need any more than that?”
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