Talk all you want about the fiscal cliff, but more important still will be how the Obama administration deals with a potential growth-inducing energy boom. With America about to join the ranks of major natural gas exporters and with the nation’s rising oil production reducing imports, the energy boom seems poised to both boost our global competitiveness and drive economic growth well above today’s paltry levels.
This puts President Obama in a dilemma. To please his core green constituency, he can strangle the incipient energy-led boom in its cradle through dictates of federal regulators. On the other hand, he can choose to take credit for an economic expansion that could not only improve the lives of millions of middle- and working-class Americans, but also could assure Democratic political dominance for a decade or more.
Stronger economic growth remains the only way to solve our nation’s fundamental fiscal problems other than either huge tax hikes or crippling austerity. As economist Bret Swanson has pointed out, the best way to raise revenues and reduce expenditures, particularly for such things as welfare and unemployment, would be to increase overall growth from the current pathetic 2 percent rate to something closer to 3 or 4 percent.
Swanson suggests in a few simple charts (PDF) that a 4 percent growth rate would drive output to levels that would cover even our current projected spending levels. Even at 3 percent, the additional revenue would be enough, for example, to fill in Medicare’s looming $24.6 billion liability that is projected to 2050. The effects of higher growth are likely far greater than either any anticipated bonanza by raising taxes on the “rich” or enacting the most extreme austerity.