Too often, the debate in Washington centers on what certain political “leaders” are willing to do. Given the fact that our economy needs more in terms of a boost than either party seems capable of considering, the folks at Reason have asked several libertarian/free market leaders to give their thoughts on how they’d turn the economy around.
Ideas include everything from repeal of ObamaCare to repeal of Sarbanes/Oxley and eliminating the minimum wage for people younger than 25.
These are just some of the possibilities that will likely never get a hearing in Washington, but should be on the table if our government is serious about unleashing economic growth.
Paul,
This is an excellent topic…how often do we ever really hear any honest debate with regard to real economic solutions. I can appreciate all of the ideas referenced by each of the individuals who responded to the challenge, however, I can’t help but analyze, think out loud about and pick apart some the comments offered in your referenced material by Mr. Bruce Bartlett, former domestic policy adviser to Ronald Reagan and a treasury official under George H.W. Bush. It’s nothing personal towards Mr. Bartlett, it’s just an attempt at honest debate without the spin on behalf of someone else’s agenda.
Mr. Bartlett’s original opinions are in quotes, while my thoughts are not…let rambling begin:
“I don’t believe there is any way to increase employment significantly without raising the rate of economic growth.” False…Fear and uncertainty continue to be the watch words of the U.S. economy, as well as that of its potential employers. U.S. employers, as well as those that they hire, are competing with whole nations, such as China, on extremely tight margins.
Let’s eliminate, trim and/or groom the ongoing uncertainty and non-value added costs (i.e., Obama Care legislation, Dodd-Frank, and Bush era S.O.X., along with various regulatory agencies and their expanding authorities) to the point where these punitive factors, agencies, and their costs, can no longer outweigh the added benefits of expanded employment within the U.S.
Yes, the American system, along with its markets, is exceptional, however, it’s a whole new world and the U.S. is not only in direct completion with other markets, but other whole countries. Many of these countries, one in particular, maintain very little in the way of standards…costly regulatory standards or otherwise…but we must consider that international markets must also compete for top IPOs entrants who are willing to capitalize within the competing market systems. For example, companies who would have once gone to U.S. markets, like the China Construction Bank, which went public to the Hong Kong market, rather than the New York Stock Exchange, in order to introduce its single $9.2 billion IPO. Additionally, it’s difficult to argue that the timing and effects of Mark-to-Market accounting standards somehow helped the U.S. economy in 2008.
“Therefore, the real question is how to raise economic growth.” True…the current U.S. cost structure is based on a matching structure of economic resource growth and expansion (supply side).
“I continue to believe that the economy’s fundamental problem is a lack of aggregate demand.” Half true…there is a lack of aggregate demand, however, production (supply) is being held in limbo due to the current constraints of existing debt burdens, inefficient cost burdens and the related risks and uncertainty associated with the net incentive to earn, produce, invest capital resources and obtain a reasonable return on the risk of total investment over the longer term.
“I think a dose of inflation is just what the economy needs and libertarians should stop being so obsessive about it.” Like it or not, this may be absolutely true…and I’ll explain why…we have transitioned to a global economy, with global players. It’s all about balance. Due to the issues of the transition, global imbalances have and continue to exist (i.e., global currency manipulation, for one). For the most part, and in the aggregate, the globe continues to operate not on a gold standard, but rather, the U.S. Dollar Standard. Under that particular premise, consider the need and strategy to re-balance global affairs, and currencies, via a lowering of the value of the U.S. dollar to those who would continue to attempt to peg their currencies 30-40 basis points below the value of a dollar on the open markets…INFLATION!!! That is, global inflation.
It’s difficult to peg one’s currency below the standard when you have the largest population in the world to feed and the price of bread begins to soar. You think the Wall Street protests are bad…just wait for the continued effects of ongoing QEx, globally. Add to that the dilemma of economic growth that created a Chinese Super Bubble, some serious off balance sheet Chinese debt lending for its own construction and employment growth, alongside whole towns that continue to sit vacant, and you have a few problems on the horizon…and globally.
Let’s think of it in terms of a couple of crude metaphors; U.S. mtg.s were to debt as a massive gambit would be to a high stakes chess match. If we were to think of the U.S. is one large corporation, then its financial managers (the Fed.) have arranged for a leveraged buyout (via China) while at the same time, controlling the terms of the long-term interest rates required in order to payback the corporation’s total debt (U.S. T-Bills)…meanwhile, capital has been pumped into the corporation for a shot at future corporate production and potentially massive U.S. investment returns. Make any sense…we’re playing a game of global economic chess, and a new Mastermind/Scientist/Conceptual Director type fellow is directing our next monetary move on the board.
“Moreover, I think at some point they need to admit that the Fed cannot raise aggregate demand by itself when the economy is in a liquidity trap, which it obviously is based on the level of interest rates being close to zero.” No need to worry, Bruce…these current interest rates are strictly temporary…let’s keep it real!
“Under these circumstances, I believe that some form of aggressive fiscal policy is necessary to get money circulating, raise the velocity of money, and get the economy out of a liquidity trap.” That was true two and a half years ago, due the constraints of individual and corporate leverage, but we often get way too caught-up on “sides” here (supply side vs. demand side economics)…these are simply two sides to the same economic coin, and both sides should have been address simultaneously, two and half years ago. However, and as it stands now, the supply side of this economic solution is long overdue, while the first demand side attempt (Stimulus) was probably overzealous and may have been forcefully wasted in relation to its intended purposes of recovery and growth.
“I do not believe, under current circumstances, there is any type of tax cut that would achieve this goal” (don’t be silly, can you say capital gains rates)”; only direct spending” (demand side, again, really, again!) “by the government on purchases of goods and services will help.” There’s simply no way that it could help without the promise of a future return on the investment (supply side) in these goods and services, government or private sector. If I pay Bruce to build future innovators, bridges, or whatever, but he instead spends his time playing solitaire, because I can’t terminate him, does that create future demand, competitive production, or economic returns that are in balance or greater than that of my original Stimulus investment? Again, it’s a two sided equation that will require a two sided solution.
“Therefore, the Fed will, somehow or other, have to figure out how to raise aggregate demand by itself.” Probably right about this…and this because there’s no way that the current politicians are going to allow the natural market forces to go to work to fix the problem. Not too many of them that would suggest that wages should be deflated relative to global wage rates…but hey, no worries, no one will put two and two together if we just inflate the cost of everything else…so now the American taxpayers are essentially going to be bailing-out the Politicians as well…there’s some serious irony here…and freedom sure isn’t free, or necessarily permanent.
“The only other thing I can think of to raise growth would be a deliberate devaluation of the dollar, which would raise exports.” Yup…it’s going on as we speak, and will have to continue to monitor the “balance-of-payments”, but thankfully, the government will not have a cap and trade tool to use against America’s import of foreign oil. Not too sure that Bruce is a very big fan of the freedom to choose.
“Theoretically, the Fed could buy as much foreign currency as necessary to bring the dollar down. But this is impractical because foreign countries can retaliate by buying dollars with their own currency or impose restrictions on U.S. imports. Any policy of devaluation would be strenuously opposed domestically by those who are obsessed with the idea that the dollar should be strong regardless of the economic conditions.” Nope…not by all…again, this is a global game of strategy, with global players who are taking regional and traditional global sides…thing game theory, and you of all people should know better.
“I realize that everything I have just said is totally contrary to the libertarian worldview.” No, it’s just that is so underhanded and intellectually dishonest that it’s actually insulting to our intelligence.
“However, I believe that implementation of libertarian policies, such as cutting spending and tightening monetary policy, under current economic conditions will only make it worse.” Not if it’s done incrementally, over time, and in order to structure-in for a more efficient and less obtrusive government that allows for future economic growth and efficient use of existing capital.
“I support any regulatory measure anyone can think of to reduce unemployment, but am disinclined to think there are any that will have more than a trivial effect under current macroeconomic conditions.” Fine, then let’s get together and re-align the incentives and resources in order to fix both current and future imbalances, nationally and globally…it can be done if we’re willing to look at all sides! The country’s founders, with the help of folks like Adam Smith, created a system that could do just that.