Increasing Economic Growth

An interesting comment to my post about this morning's employment report says that we cannot expect rapid economic growth in America for at least 2-3 years and that it would take Mitt Romney's entire term (if he is elected) to change the trajectory of the economy. I strongly disagree. Obviously, the American economy is huge and it cannot be turned on a dime. It will take time for the upward momentum to build. Nevertheless, there are actions that can be taken in the first three months of a new presidential term that could have things humming pretty quickly. Here is a partial list of those actions:

1) Push down the price of energy. Contrary to Obama's defeatism on this point ("there are no silver bullets"), the president can have a major impact on the market price of oil. We need to change the expectations of future supply and future demand even though we cannot immediately change the current production levels. Steps like those could send the speculators out of the market, thereby reducing current demand. Think of it this way: if an oil trader with large positions in oil futures comes to believe that the supply of oil will soar in the future, that trader is going to sell his positions rather than holding them as they decline. These sales will drive the price of oil down. Similarly, if the traders with positions believe that it will be more expensive to hold the positions for the long term, they are more likely to sell those positions and drive down the price.

What all this means is that were the president to announce major expansions in drilling, the expectation of future production increases would push down the current price. Similarly, were steps taken to increase the cost to hold oil as an investment, the current price would also decline.

A decline in the price of oil would put more money into the pockets of consumers immediately. It would also keep more money in the American economy by reducing the amount sent to foreign oil producers for their products. It would be an immediate and continual stimulus for the US economy.

2) Permanently revamp the tax code to reduce rates and get rid of deductions and loopholes. This is not a simple task; it is, however, one that could be accomplished in three months with major presidential involvement to keep the result on track. In three and a half years, Obama has stayed completely out of the drafting of actual tax provisions and left that work to his allies in Congress. Obama has never even proposed a statute to modify the tax code. As a result, nothing has been done.

Lower taxes would improve the climate for investment. Further, removing the constant fear of changing tax structures would be a tremendous boost to the economy as well. How many business investments were not made due to uncertainty over future tax rates? No one can say for sure, but the number is certainly substantial over the last three and a half years. Since investment translates quickly into economic growth, improving the investment climate is the best way to create sustainable economic growth.

3) Change the tax structure for repatriation of cash held overseas by American companies. There is a treasure trove of about 1.5 trillion dollars held abroad by American companies. These funds are not returned to the USA, since such funds would be taxes at 35% the instant that they were repatriated. It would be easy to change this provision of the tax code almost immediately. For example, the rate of taxation on such funds could be cut to 5% provided that the funds are used for dividend increases or investment in assets other than stock repurchases. If one trillion dollars is brought back to the USA under this deal, the Treasury would get 50 billion dollars of additional revenue from the corporations and probably more than that in taxes paid on the additional dividends. More important, however, the economy would get a boost of many hundreds of billions of dollars of new investment which would push the rate of growth up rather quickly.

4) Repeal Obamacare and Dodd-Frank. This too could be done in short order. Right now, Dodd-Frank is making it extremely difficult for small businesses to get the loans needed for growth. It is also requiring enormous expenditures by the financial industry to comply with the enormous numbers of new regulations that come with this law. One New York centered bank announced earlier this week that it was hiring 4000 people just to comply with the regulations of Dodd-Frank. These are unproductive people, but their cost will be a drag on the bank for years to come. In other words, Dodd-Frank is a major drag on the economy.

Obamacare is another major drag on the economy. Enough has been written about this that I see no need to repeat it all here. The point is that rapid repeal of these two statutes will juice up the economic growth in rather rapid fashion.

This is only a partial list of what needs to be done. Then there are also the many items which will take longer to achieve. Things like rationalizing the federal structure to remove anti-business elements. For example, the focus of the EPA has to be changed from strident environmentalism at all cost to preservation of the environment in a rational and cost-effective way. New efforts are also needed to improve international trade. This includes opening new markets for American products and reducing the areas in which other countries have unfair advantages over US products. This will include regularizing trade with China.

Another major item that the new president will have to do is to get control of the federal budget and the ever growing deficit. Obama has failed miserably here. Continued failure, however, will spell doom for the American economy. This effort, however, will take time.