At the most recent meeting a year ago in Seoul, the G-20 rejected the president's [Obama] pleas for a deficit-increasing Keynesian stimulus and instead urged credible budget-deficit reduction and a return to sound fiscal policy. And on that trip he had to defend the activist monetary policy of the Federal Reserve against widespread criticism that its easy money was damaging to emerging-market countries, causing volatile capital flows and inflationary pressures.It could rightly be argued that American economic policy post WW2 was not perfect given its over use of regulation and high marginal tax rates, but comparatively speaking the American model was better than that being used in large areas of the world which were not free either economically or politically. Just compare it with post WW2 Britain with its even greater controls over the economy. John Jewkes summed up the situation in the title of this book "The new ordeal by planning: the experience of the Forties and the Sixties". And it was often better than much of the policy we see today.
With a weak recovery—retarded by new health-care legislation and financial regulations, an exploding debt, and threats of higher taxes—the U.S. is in no position to lead as it has in the past.
By contrast, in the years after World War II, the U.S. led the world in promoting economic growth through reliance on the market and the incentives it provides, the rule of law, limited government, and more predictable fiscal and monetary policy. It created a rules-based, open trading system by helping to found the General Agreement on Tariffs and Trade, which slashed tariffs multilaterally. The miraculous postwar European and Japanese recoveries came from greater adherence to these principles of economic freedom and direct support from the U.S.
After getting off track with interventionist policies in the 1970s, the U.S. put its economic house in order in the 1980s, adopting pro-growth policies and creating a long boom that lasted through the 1990s. Again its economic ideas were contagious, not just in Britain under Margaret Thatcher but in the developing world. Seeing the advantages of American-style economic liberty over state intervention and control, Deng Xiaoping expanded his initial and tentative market-based reforms in China and created an economic renaissance. The U.S. helped the countries in Central and Eastern Europe implement market-based reforms, and it encouraged other countries and the international financial institutions to do the same in Africa and Latin America.
As the U.S. has moved away from the principles of economic freedom—instead promoting short-term fiscal and monetary interventionism with more federal government regulations—its leadership has declined. Some, even in the U.S., may cheer the decline, but it is not good for the world or for the U.S.
Taylor is right when he says,
If [...] the U.S. starts to return to the principles of economic freedom—the best route to improving its own economy—then perhaps it will be able to reassert its economic leadership, benefit the world economy, and in turn create an even more prosperous American economy in a grand virtuous circle.