Presentation by William Beach & Mike Franc The Heritage Foundation and Paul Gessing The Rio Grande Foundation

What We Will be Presenting Brief foundation on how economies grow Why do we get into recessions Why government spending is not like household or business spending Review of current stimulus policies Nationally, what we should do to create jobs In New Mexico, what can government do Summary

Background: What is Economic Growth? Economist’s Explanation: – Measured by regular increases in economic output after adjusting for inflation. – Usual measurement is Gross Domestic Product at the national level – Or, Gross State Product at the state level. – Both measurements equal the value of goods and services sold to final consumers.

Background: What is Economic Growth? Educated Layman’s Explanation: – Steady growth in income and purchasing power – Growth in business opportunities and jobs – Available credit at affordable interest rates – Sufficient income to create savings for household needs and retirement – Steady growth in the value of investments Here is what has happened to the US economy in the last several years…..

So, Why Would a Recession Ever Occur? Tens of millions of mistakes are made in the US economy every day. However, more good decisions are made each day than bad, which is why the economy continues to grow. Recessions are not normal or inevitable. They occur when something causes a trend of errors to be made.

What Starts Recessions? Recessions start in part because of public policy errors. – Policy can re-enforce bad economic behavior or create incentives that undermine innovation Non-productive assets (labor and capital) must be rearranged to create value Thus, many assets must be “liquidated” or given new economic assignments.

What Ends Recessions? Economic evidence shows that two factors are important: – Appropriate, timely actions by the monetary authorities to support transition in the financial sector. – Reductions in the cost of capital and labor and the business costs associated with regulation. Entrepreneurs lead the way out of recessions because they discover how to reconfigure the productive assets of the economy.

Jobs Plan of Congress Not Working

Obama Jobs Plan Going in the Wrong Direction

Current Stimulus Stems from a Model of 1933

Which was Tried Again in 2008

A Better Way: Lower Taxes and Less Regulation – Reduce business taxes from 35 to 25 percent – Simplify tax rates to three: 10, 15, and 25 – Repeal or reduce the death tax rate to 15 percent & $5 million exemption per person – Make the tax relief of 2001 and 2003 permanent – Repeal onerous regulations, like the Sarbanes- Oxley law and Obama Care. – Expand our nation’s energy supply

The Two Stimulus Plans Which is Better for the Economy?

Few if Any Benefits from Stimulus Plan But Lots of Debt For the Next Generation

The Obligations of the Debt Paying Generation Total debt expected to grow from $7.5 trillion in 2009 to over $15 trillion by – That is from 53% of GDP in 2008 to 67% of GDP in In 2008, debt equaled 41% of GDP Tsunami of debt from Social Security, Medicare and Medicaid will push total debt to 320% of GDP in 2050 and 750% in 2083

What Should New Mexico State Government Do?

New Mexico’s Government Bureaucracy is Very Bloated State and Local Government Employees Per CapitaRankState New Mexico Texas Arizona Colorado Nevada National Average

And Government Workers Are Better Paid than their Private-Sector Colleagues State and Local Compensation as % Above/Below Private SectorRankState 27.60%3Nevada 11.50%10New Mexico 7.00%18Arizona -7.70%46Colorado -9.80%50Texas 2.20% National Average

New Mexico is THE most reliant state on the federal government State Federal Spending per Dollar of Federal TaxesRank New Mexico$2.031 Mississippi$2.022 Alaska$1.843 Oklahoma$ Arizona$ Utah$ Texas$ Colorado$ Nevada$0.6549

Conservatives Should Recognize Success of Richardson’s Pro-Growth Tax Cuts of 2003