Jobs, Deficits, and Taxes: A Warning from Britain and Naples, Fla.

As I travel around the country, American Solutions hosts discussions with small business leaders to learn about the challenges they face creating jobs.  One such meeting painted a very sobering picture of the next decade if we don’t dramatically change our economic policies. 

The meeting was in Naples, Fla.  Callista and I were in there last Sunday night for a screening of Nine Days That Changed the World at Ave Maria School of Law so we decided to organize another small business meeting the next morning before we left. 

What I heard there was a stark reminder of the economic challenges facing America. Here is a snapshot:

• A builder who used to have 60 homes under construction at once is now down to six;

• Many homes are in foreclosure;

• Bank credit remains very tight and big banks are refusing to renew credit even to good customers with solid cash flow;

• A job that paid $30,000 a year drew 120 applications including people with MBA degrees;

• County government is too big and too expensive. I was told that Collier County charges more in fees to start a new fast food restaurant than it costs to build the building in which it will be located.

Faced with these reminders that jobs matter and that getting back to economic growth is vital, I was further educated by John Mauldin’s new "Outside the Box" newsletter. 

Mauldin is someone I read regularly because he has a wide-ranging understanding of economic reality and he introduces a surprising combination of new ideas and common sense to his analysis.

He also does a good job highlighting important articles and news.  His latest newsletter had two columns by Martin Wolf of the Financial Times. Wolf is one of the shrewdest economic reporters in the entire world.

I strongly urge you to read both these columns. Wolf is talking about Great Britain but his advice reveals a lot about America.

Britain is running a huge government deficit.

That deficit is caused by a modest increase in government spending combined with an 18% decline in revenues due to the declining economy.

The deficit will eventually be unsustainable and will lead to a decline in the value of the pound and rising interest rates.

If it is handled badly it could lead to catastrophic inflation and interest rates.

The first reaction of government is to raise taxes.  But Wolf points out this might actually make things worse by further weakening the economy and increasing unemployment, which would then worsen rather than improve the deficit.

The challenge for Britain is to follow policies that strengthen manufacturing so it can compete in the world market and increase value adding jobs in the private sector.

These new, better jobs would then increase revenues as people with higher incomes increase government revenues.

Wolf outlines the key challenge for every level of government in the United States.

How do we adopt policies that attract high quality, high productivity jobs while competing in the world market?

How do we shrink the bubble of government (the fourth recent bubble after IT in 1999, housing in 2007 and Wall Street in 2008)?

Note that yesterday in New Jersey, more than half of all school budgets were rejected at the polls (the most since 1976) because they tried to raise taxes rather than accept a one year pay freeze and benefits modification for teachers championed by Gov. Chris Christie.

Tea Party activists in many New Jersey counties rallied taxpayers to send a decisive message, with voter participation far above normal. These counties are now going to need to take very serious looks at how to cut spending.

All this implies the opposite of the Obama strategy of bigger government, higher spending, bigger deficits, and higher taxes as a method for economic growth. 

Your friend,

Newt’s Quick Links:

• Callista and I have enjoyed meeting people at the premiers of Nine Days That Changed the World.  Visit for updates and interviews from the tour.

• The Center for Health Transformation has a new daily update of important healthcare related articles.  You can sign up for it at

• When a reporter asked Nancy Pelosi where in the Constitution did Congress get its authority to require individuals to buy health insurance, the House speaker was visibly vexed. Matthew Spalding, director of the B. Kenneth Simon Center for American Studies at The Heritage Foundation, posted an insightful piece explaining why that might be. It’s called “Progressives vs. the Founding Fathers.” You can read it here.