The case for growth

Over the last two years, the focus of economic discussions has been on three things: 1) the elevated level of government spending and the negative effect that the resulting deficit has on the economy; 2) the drastic increase in the amount of government regulation being imposed on business whether through Obamacare, the financial “reform” bill or carbon emission controls; and 3) the explosion of the money supply as a result of the financial “easing” of the Federal Reserve in Quantitative Easing and QE2. As the focus of political discourse in the USA slowly shifts towards the 2012 presidential election, it is time for a resurgence in the discussion of ways to increase growth of the private sector of the economy. Here is a clear way to think of this. On the one hand, Congress is now battling over spending levels for the remainder of fiscal year 2011. The GOP wants further cuts of 51 billion dollars, while the Democrats say that they will accept 20 billion in cuts. That means that there is $31 billion in issue. That is less than 1% of the entire amount of federal spending for the year, and yet, the participants talk about the battle as if it were a new world war. On the other hand, if a way were found to increase the growth of GDP by the same 1%, it would mean the addition of close to $150 billion of additional wealth to the country. It would also mean many hundreds of thousands of new jobs created and enormous numbers of folks coming off of unemployment compensation rolls and other welfare programs. There would also be significant increases in government revenue as taxes hit the additional $150 billion of production. In short, 1% extra growth would have a positive impact on the budget deficit many times larger than the $31 billion in cuts that are the subject of the current battles. Simply put, it is time to shift the debate so that it includes strategies for growth of the economy.

It is no mystery what is needed for there to be additional growth in GDP. In fact, the prescription is quite simple: there have to be perceived opportunities to make investments in the private sector that will likely result in a stream of profits over the years which will compensate the person making the investment for the risk taken. Putting this in more concrete and less economic terms, a person contemplating opening a business will do so if he or she thinks that the business will have a good likelihood of making enough money to pay back the initial investment and to generate nice profits over the years. Of course, while this statement may be simple enough, the items that can affect it are very complex; that is why we need to have a national debate about ways to increase growth.

First of all, it is essential that the political candidates explain to the American people the need for growth. Obama’s message and that of his party has been one of sharing the wealth, not creating new wealth. You know the claims: the oil companies get too many breaks while the middle class gets taxed; Wall Street fat cats got rich while everyone else saw their pension and investment monies dwindle; those who can afford healthcare have to take less and pay more so that those who do not have health insurance can be covered; and everyone has to pay more for energy so that we can shift to renewable sources like wind and solar and avoid pollution of the planet. The GOP needs to be relentless in explaining that it does not want to take from the rick to give to the poor; that can be left to Robin Hood. Instead, the GOP should make clear that its goal is to grow the economy so that all Americans can have more income. Growing the pot for each American has to be superior to just redistributing the present level of wealth.

Second, the GOP needs to explain the growing the economy will be the best way to close the federal budget deficit. The folks in the Tea Parties may be budget hawks, but they are not just about austerity. Nevertheless, there needs to be a clear explanation of why growth will reduce government social expenditures and increase government revenues.
Third, the GOP needs to explain that growing the economy is also a requirement for America to remain a superpower. Stagnant growth in the face of the redistributionist policies of the Obamacrats will sap the ability of the USA in the long run to pay for its current level of defense. It will reduce our ability to act in a time of crisis. It will remove the USA from a position of economic hegemony in the world. Indeed, this is a national security issue.
Fouth, the GOP should explain why policies that promote the growth of the economy through private initiative is a good way to reinforce the individualistic aspects of the American character. The reason that this country has achieved such greatness is, in part, that individual American people have achieved greatness. Bill Gates and his friends started Microsoft and now employ enormous numbers of people. Bill’s classmates at Harvard who went into government work created nothing, no jobs, no wealth, … just nothing. While this is not an economic discussion, it is a critical one, nevertheless.
Fifth, there needs to be a clear explanation why the policies of Obama and the Obamacrats have been bad for growth. Think of it this way: More regulation puts more uncertainty into the equation. Another way to say this is that when the feds impose new healthcare requirements on every business owner in the country, it means that the likelihood of profits for a new business have gone down. When financial firms become regulated under the new law so that the federal government will now review the gender, racil and age breakdown of employees to see that they are appropriate, the likelihood of profits for a new business have gone down. Let’s be clear on this. A new financial firm will need a compliance officer who will spend substantial time making sure that all of these “critical” new gender/racial/age policies have been met. That costs money. Those who get hired will no longer be those who are the best suited to make money for the business, but rather they will be those who meet the racial/gender/age criteria first and then those who are best suited to make money. That means a lower likelihood of profit. Put those two together and it means that fewer businesses will get started; less money will be invested; fewer jobs will be created; and GDP will grow at a slower rate.

Of course, it is not just regulation. Obama’s policies have also led to higher costs for all American business. Just think of energy costs. Since taking office, Obama has managed to take actions that have lowered the projected production of oil and natural gas liquids from the Gulf of Mexico by about 500,000 barrels per day in 2011. That means that every day, fifty million dollars is sent by Americans overseas to places like Venezuela, Iran and Libya to buy the oil that they produce. It also means that a fair few number of jobs in the Gulf states have been destroyed. It also has led, in part, to the higher world price for oil, a change which increases costs for every American business. Indeed, the price rise in oil over the last six months is estimated to have reduced the growth rate of the American economy by about one half of one percent all by itself.

This is just an outline of the first step towards making growth a major issue in the national discussion. Over the next few weeks and months, I intend to follow up with specific ideas that can be proposed to achieve that growth.